Free Money Finance

Owners of Second Homes: Beware of New Tax Laws

The following is a guest post from Marotta Asset Management.

If you own two homes, sell the one you are living in and move into your second home as soon as possible. Tax changes taking effect on January 1 will make owning a second home much less attractive in 2009. As a result, the already depressed market for vacation homes will deflate even more.

Previously, any capital gains on your primary residence were excluded up to $250,000 for singles and $500,000 for couples. A primary residence was defined as any home you had lived in for two of the previous five years. The "prior rule" gave seniors moving to a new residence three years to make the move permanent. During that time they could still sell their original residence and take advantage of the exclusion.

It also allowed seniors who had a vacation home to move there and sell their primary residence. After two years their vacation home qualified as their primary residence. Young grandparents approaching retirement could buy a retirement home as a vacation destination while they were still working. After retirement they had time to sell their original home and in two years gain a full exclusion for their new residence.

With the new rule, primary residence is not something you can qualify for. Rather it is just a percentage of the time you live there.

The new law eliminates the capital gains exclusion, prorated on the amount of time a home was not your primary residence. After January 1, every day you aren't living in a home starts adding to the percentage of capital gains tax you will ultimately be obliged to pay.

Also, capital gains are no longer waived on a primary residence unless it has always been your primary residence. Starting in 2009, the percentage of time a home is not your primary residence will be the same number used to calculate the amount of capital gains that won't be waived. For example, if you own a house for ten years and have only lived in it for five, you will have to pay taxes on half of the capital gains when you sell it.

These are the same capital gains that President-elect Obama promised during his campaign to raise from 15% to 28% on the most productive citizens. Some states (e.g., California) tax capital gains at ordinary income tax rates, adding an additional 9.3%. So people who make significant contributions to society could easily be facing taxes of 37.3% on gains that are mostly inflation.

This isn't just a problem for the wealthy. You can be pushed into the top 1% of income tax payments simply by selling a house in California. Middle-class couples routinely get hit with unexpected taxes selling a home with capital gains well over the $500,000 exclusion. Because it is not a onetime exclusion, couples who have stayed in the same house for 40 years get socked with the tax, whereas couples who move every decade have multiple chances to realize smaller gains that are under the limits. People who move frequently shouldn't be rewarded with a tax break.

Here's another factor to consider: Home appreciation is mostly inflation. Taxing government-created inflation as so-called gains isn't fair. Even according to the official inflation numbers reported by the government, the equivalent of a million-dollar home today was a $179,154 home in 1970. Calling the $820,846 inflation a capital "gain" is ludicrous.

Class envy is equally mindless. Capital gains on real estate affect your finances even if you don't own a second home. The housing market isn't segmented into primary and secondary residences. What depresses the values on second houses depresses the value of all homes.

The second-house class is the very group that could have helped shore up today's slumping housing market. Speculators who would have bought real estate at the current depressed prices will find this option far less attractive in 2009. Instead the new law will encourage them to sell their current residence (taking the full deduction) and move into their second home. Then their second home will become their sole and primary residence, and they won't have to deal with future nonexempt capital gains taxes. Ask your financial advisor about the potential costs of continuing to own two homes. If you delay, you may be holding an unused vacation home until you die just to avoid this new tax burden. And as a result, your heirs will inherit the house with a step-up in cost basis.

Because of the law, thousands of additional homes will be added to the market, softening the demand for housing even further. It is as though a shortage of people are buying real estate and we've passed a one-per-customer tax incentive law. There is no reason to discourage what no one is willing to buy. The new legislation will probably push home values to new lows during 2009.

Why the law was changed is unclear. The old law was difficult to abuse. Those who were rapidly turning over real estate could not take advantage of the law. If someone tried to flip 25 homes, it would take 50 years. The new law doesn't make any sense, but if it did make sense, it probably would not be Congress.

The new law won't bring in much additional revenue either. But it will complicate record keeping and tax returns for anyone selling a home they have not lived in continuously. As a result of these disincentives, buying or selling vacation homes will become less desirable.

This legislation graphically illustrates the deadweight costs of taxation. Rarely is the concept so clear. The law will remove much of the value of vacation homes from the economy without collecting much additional tax revenue. All pain, no gain. It teaches us a sad lesson about the destructive power of taxation.

Vacation homes represent an expense that can easily be let go in challenging economic times. Many families own a vacation home during the season of children or young grandchildren. After that, the travails of maintenance and repairs outweigh their pleasure in the home. Management companies remove much of the headache but make the economics even more problematic.

In times of rising home values, the investment in a home at least kept up with inflation, but with the new laws the government will tax you on that inflation. As a result of these changes, consider simply renting a vacation home and letting someone else pay the capital gains tax.

Is 'Intentional Foreclosure' Ethical?

Here's a question a reader asked Bankrate:

I bought a home two years ago that's now worth $120,000 less than I paid for it. Ouch! What's more, the bank won't touch a refinance. But I do have about $80,000 in savings. If I used it for a down payment to buy another home, then let the other go into foreclosure, could the bank come after the equity in the more recently bought home? Yes, it's a shady thing to do, but I feel it's my only option.

The response goes on to talk about what's ethical in personal finance and how it pertains to this situation. I won't give you their answer -- I thought it would be fun for all of us to give our thoughts on it instead. So, if someone is underwater on their home yet has money they could use to keep making the payments, is it ethical for them to let the house be foreclosed on and use their assets to buy another one?

Also, for a real-life example of how this might happen, check out The Foreclosure Crisis Hits Close to Home, Part 2.

10 Most Expensive Homes in the World

If you want to see the 10 most expensive homes in the world, you can check them out here. And it looks like those that are for sale will be hit by the same financial realities the rest of us are facing.

What I Learned from Almost Buying a House

As most of you know, our recent house purchase didn't go through. But we did get right up to closing (within a couple days) before an inspection revealed something we just couldn't live with. Anyway, I thought I'd share a few of my insights from the process that you all might find interesting/helpful. Here goes:

• We got a very low mortgage rate by pitting two different lenders against each other (one a bank and one a mortgage broker). I knew both guys and was upfront with them throughout our process that we would 1. give them both an option to bid on the mortgage and 2. select the lowest bidder. I went back and forth a couple times -- with them lowering rates (initially) then closing costs and other criteria (like them escrowing for taxes -- something I didn't want) -- before one cried "uncle." Kind of like the same process I used when buying a car.

• Closing costs are HIGHLY negotiable (especially if you have lenders competing). Ours started at $3,500 or so and ended at $1,200 when all was said and done. For more specifics, see these two articles: Many closing costs negotiable and New York again tops 2008 closing costs study.

• When we had our inspections (two actually -- one general inspection and one plumbing specific), I followed around the inspectors and took a ton of notes. They not only told me what shape everything was in, but how many things worked. I had a laundry list of "to-dos" when I was done, but there wasn't anything really big in the initial inspections (the issue we couldn't live with was discovered later through a water inspection the seller was required to perform.)

• My credit score had actually gone up since May when it was 799. I got scores from three different reporting services and they were 813, 798, and 821. No wonder we got the highest discount on our homeowner's insurance.

• Real estate agents want you to close on the home NO MATTER WHAT -- even if doing so isn't in your best interest. When the "issue" arrived, our agent suggested we go ahead and close on the house and write in that they would fix it in 30 days. Yep, you read that correctly. Unbelievable. When I pointed out that there was a good chance they couldn't fix it to our satisfaction and if we closed now we'd lose our negotiating leverage and could be stuck with a house we didn't like, she seemed to blow that off -- the thought of a huge commission seemed to keep her pushing for a sale. But we were steadfast and held our ground. Lesson: you're on your own when buying a house. Never forget that even your own realtor can be as much "against" you (or your best interests at least) as anyone else.

• Our house was on the market for one month at a fair to aggressive price. We had two people interested: one willing to pay half price and one that wanted to rent the place for three years. I guess it could be worse. The people who want to buy our home have had zero people look at theirs in the few months it's been on the market.

U.S. Homeowners in Denial

Check this out -- from US News:

This quarter, 49 percent of homeowners said they think their own home's value has increased or stayed the same over the past year. However, nearly three-quarters (74 percent) of homes have lost value in the past 12 months, according to preliminary analysis of Zillow's Q3 Real Estate Market Reports, which will be released Nov. 12.

I guess it doesn't really matter if you aren't selling your home, but from watching the real estate market for two years in my area I can tell you that most sellers haven't yet realized that their home is worth far less than they think it is.

Paying Down Your Mortgage Makes a Comeback

As an add on to our discussion yesterday on how to pay off a mortgage -- check out these thoughts from the NY Times:

Homeowners with an aversion to debt are sometimes tempted to pay down their mortgages before they come due. That can be a misguided approach, some financial counselors say, if borrowers can instead put that money into relatively safe investments that produce a higher rate of return than the interest rate they are paying on their mortgages.

In the current financial environment, however, prepaying on a mortgage might make sense.

With the securities markets plunging early this month, there have been few well-paying safe harbors for investors, making early mortgage payments more enticing than might otherwise be the case.

As has always been true, paying off a debt is a guaranteed return on your money. With the market the way it's been lately, nothing's guaranteed in the short run (though in the long run odds are it will be a good performer.)

As you all probably know, I paid off my mortgage using a specific formula for buying a house. The move to pay off our mortgage, something that once looked ridiculous to many when evaluated on a financial basis alone, now looks like it was a pretty good move, doesn't it? ;-)

For those of you interested, I've written about the tradeoffs of investing versus prepaying your mortgage (a couple times.)

I'm interested in hearing from you. Anyone out there who used to be in favor of investing over mortgage/debt prepayment now shifted their position (at least in the short term)?

How to Pay Off Your Mortgage

Crosswalk has some tips on paying off your mortgage as follows:

• Principle #1: Your Contingency Fund trumps paying ahead on your debts.
• Principle #2: Your mortgage should be the last debt you pay off.
• Principle #3: Investing in your mortgage or the stock market depends on other factors.
• Principle #4: Do not enroll in your lender’s formal bi-weekly payment plan.

My thoughts on these:

1. #1 and #2 really go together in my mind. My order of saving/debt payment would be: emergency fund, 401k up to the point where matching stops, credit card debt repayment, paying off other debts, saving/investing for other future needs, paying off your mortgage. This is how we did it, though we didn't have any other debt than our mortgage when we started the process of paying it off.

2. We didn't have to choose between saving/investing and paying off our mortgage -- we did both. We had created such a gap between our income and our expenses that we had enough to achieve all our objectives at once (though, of course, it is always nice to save even more.)

3. We NEVER enrolled in a lender program. Why would we? It's something that costs money that we can do (and did) on our own for free. Waste of money for us (and for most people -- maybe it's good for those who are not disciplined to carry it off themselves?).

4. A key to paying off your mortgage early is my formula for buying a house.

Why I Won't Rent Out My Home

Here's a piece that advocates renting out your home if you can't sell it. The story gives all the positive arguments for renting and dismisses most of the negatives (or only covers them briefly). But it does say the following:

One big drawback [to renting] is the potential for bad renters—but if homeowners SCREEN very well they won't necessarily have this issue. Another is the potential for the renter to skip out on rent. Homeowners also face the possibility of running into a "perpetual tenant" who knows how to work the system. Such a tenant might, for example, pay a deposit and then live in the house for 60 days rent free while the landlord files eviction paperwork. The stress of having to fix frequent issues—particularly in an older house—can be another drawback. (That's why it's a smart idea to have a handyman that lives close to the property that you can regularly call on.)

Here's why I won't rent:

• Don't want the time hassle -- finding a tenant, repairing needs someone else has, getting payments, etc.

• Don't want anyone living in one of my biggest assets -- Even if I know them, I'm not comfortable turning my house over to them.

• Too big of a risk -- Even if you do all the screening you can, you can still end up with a huge problem.

• Laws favor renters -- If something goes bad, many of the laws are tilted way in the favor of the renter. It's often so bad that the owner has very few options for getting out a bad tenant. And even if they do, damage is likely to occur prior to final eviction.

A home two doors down from us hadn't sold in two years (the owners are crazy -- asking for a price that would have been a stretch three years ago -- so no wonder it's sat there) and a few months ago they rented it out. The family moved in, paid the rent, did NOT pay any utilities, messed up the landscape, damaged the inside of the home (from what I heard, they worked on their car's engine in the living room -- believe it or not!), and then left in the middle of one night -- leaving the owners with a damaged property and holding the bag for the utility costs. Sure, the owners had the security deposit, but there was no way it covered all they lost, not to mention the time and effort to get things fixed.

Our neighbors did all they could to screen their renter and it still worked out this way. Nope, I'm not going to take that risk.

The Easiest Way To Launch Into Real Estate Investing

The following is a guest post from Prosperity Junky.

If you have been reading Free Money Finance for some time you are very likely investing in the stock market in some capacity.  But, have you also considered real estate investing?  Maybe you have but not sure how to get started?  Here’s my story detailing the easiest way to start your real estate investment business. 

It all began with simply my desire to move to a different part of the city.  I had wanted to make this move for over two years but I had not found the right opportunity to make that happen.  This was difficult for two reasons.  First, I currently owned a house and I was planning to rent or sell that house before I could move.  Second, I obviously would need to find a new house to buy and it takes time to find the “right” house. 

Luckily, an acquaintance presented me with an offer I could not refuse.  In casual conversation he said he had received a job offer and he was going to leave his company.  When I heard that, I really didn’t think too much about it.  As I asked a little more about the new offer, he revealed that the new position was in a different part of the state and he would need to relocate.  Hmm…now I got a little more interested!  I had a rough idea of where he lived and I knew it was close to where I wanted to be.  Being the opportunist that I like to think I am, I asked, “When are you going to be moving?”  He said, “Well I have to start my new job within 4 weeks so I will be moving soon.”  Ding! Ding! Ding!  The bells of opportunity were ringing. 

I knew right away this guy was going to have a difficult time trying to sell his house.  His job offer came at a time that the housing market was in a slump.  Houses were not selling quickly.  In addition to that, his house was also in a fairly new community.  If you were in the market for a new house, you could buy a brand new house in this area for nearly the same price or less than he was going to list his house.  On top of that, if you bought a comparable new house you could customize it to your liking.  I also new this guy needed to sell his house quickly because he needed to start his job in four weeks.  We already knew it was going to be hard for him to sell his house.  However, it was going to be EXTREMELY difficult to sell his house within four weeks. 

It’s fair to say I had the negotiating advantage I needed.  Thankfully, this didn’t require much negotiating because I had very motivated seller.  We negotiated the deal and he agreed to the following:

1. He would sell me the house for only the amount he owed on his loan. 
2. Closing costs would be covered by me.
3. No real estate agents would be used for this transaction so that we could avoid any agent fees.  Everything was done through a title company.
4. The seller would leave his refrigerator and washer and dryer without cost to me.

This was all done in relatively short order.  Now I only had to figure out what to do with my existing house.  With the depressed housing market this was an optimal time to rent the house.  As it turns out, the seller needed a few extra weeks to get his things moved out of the house.  With this extra time, I decided to move forward with renting. 

I quickly listed my home for rent.  I based the monthly rent off corresponding rentals in the area and my monthly expense obligations.  I immediately had people interested in the property.  I spent about three weeks interviewing prospective tenants.  By the third week, I had selected a tenant and already received their deposit and a signed leased. 

Eight weeks after this whole process started, I closed on the new house and moved into my new home.  Two weeks later, the tenant moved into my previous home.  I was officially a real estate investor!

I did this successfully by making two very smart money moves:

1. I identified and negotiated the purchased a new house at a significant discount plus bonuses
2. I turned a primary residence into an investment with little effort

What were the keys to my success?

1. Money and Credit:  I had been living below my means for some time and my credit score was high so I was in a good position to purchase a new home when the opportunity was right.  Note: It doesn’t matter what investment opportunity comes your way, if you don’t have money or the financing to make it happen.
2. Discounted Property:  I successfully identified a golden opportunity to purchase a new home.  This included finding a home which met my criteria which was owned by a motivated seller.  Because of this, the property was purchases at a nearly 20% discount even after closing costs.  Note: With real estate investing you make your money during the purchase, not the sale.
3. Motivated Seller:  By finding a very motivated seller, it put me in a very strong position to negotiate a very attractive deal that I just couldn’t pass up.  This increases your ability to get the property at a significant discount.
4. Tenant Selection:  Although I found a tenant in short order, I was diligent in my selection process therefore I was able to select a responsible tenant who is taking care of my investment.  Note: Not selecting the right tenant can cost you a ton of money.
5. Attractive Financing:  Finally by renting what was initially a primary residence, I took advantage of a lower fixed interest rate than would typically be available when purchasing an investment property directly.  This helps to ensure that you can cash flow every month.

Real estate investing is not for everyone.  It takes patient and hard work.  However, it does provide some significant advantages over other types of investments.  If you decide it’s for you, turning your primary residence into an investment property can be the easiest way to launch your real estate investing business.

FMF readers - Are you investing in real estate?  How did you get started?

Another Extreme Makeover Home in Trouble

We've documented the many problems with various homes built as part of the TV show Extreme Makeover Home Edition (including this comment from an EMHE worker). Well, looks like another one is in trouble. The highlights:

Sadie Holmes thought it was a blessing when ABC's Extreme Makeover: Home Edition built her a 7,000-square-foot home and office for her charity in 2006.

Now she's struggling to keep her nonprofit afloat, and she may end up losing the $400,000 home if she can't pay a $29,000 county lien — placed on the property after months of code violations racked up.

Combined with the $3,000 a month she pays to rent a storage warehouse for her nonprofit Sadie Holmes Help Services, and the $6,600 a year in property taxes, Holmes said the gargantuan debt now threatens to overwhelm her.

"I'm grateful for this building," Holmes said, "but it's causing me too much stress and too much problems."

It's not clear if the home itself was the major problem (did upkeep, property taxes, etc. cost her so much that she was in trouble financially?) or if her actions (code violations and the associated fines) were her undoing. It's probably a combination of both, though it's also likely (based on some comments in the piece) that she wasn't doing all that well when she only had the home -- especially when you look at that comment of hers above.

Seems like our potential alternative to an EMHE house is looking like a better and better option with every passing day.

Should You Buy More House Than You Need?

The following is a very interesting guest post from Jumping On The Path To Prosperity. I'm sure many of you reading this will have some quite strong comments about what he's suggesting. ;-)

This is a fascinating question with a far more complex analysis required than appears on the surface.  Right up front you need to know that I am talking about your personal residence – not an investment property.  An investment property needs to be tied to the needs of your potential renter and the common mistake made by investors is to buy a place that fits the investor's style.  That is another blog.

Let's say you need a 4 bedroom / 3 bath home in the burbs.  Let's say the home that would fit your needs totally can be purchased for $300,000.00.  At the same time, let's say you can qualify and handle the payment on a $400,000.00 home.

The Dave Ramsey's of the world would probably tell you to rent and definitely not tell you to buy the $400,000.00 home.  My feelings would send you into the $400,000.00 home for a ton of reasons.

First reason is lifestyle.  I am going to guess you will be a lot more comfortable in the $400,000.00 home than the $300,000.00 home.  If you live in the home the typical 5-7 years, that is a big chunk of your life.  Why not enjoy it?

Economics and Financial Planning make the reason even more compelling.  That $300,000.00 home is likely to appreciate over $100,000.00 in five years (based on historical averages).  The $400,000.00 home is likely to appreciate over $135,000 during the same period.  The difference is $35,000.00 if you ignore all of the tax and lifestyle benefits.

Assuming you put the national average of less than 10% down – say 8% - and you had the seller pay the closing costs, you would have an additional cash outlay of $8,000.00.  That gives you a cash on cash return on investment of $35,000.00 over five years on an $8,000.00 investment!  That is a simple return of well over 400% in five years on an incredibly safe investment.  Further, I have not taken into account the tax benefits and the lifestyle benefits.

What other investment could you possible make that is safe and secure that would predictably yield that kind of cash on cash return on investment in five years.  Because of compounding, the numbers are actually more attractive and more predictable as you go down the road.

I am not suggesting that you get crazy.  I am not suggesting that you employ this strategy if you intend to die in the property and do not intend to use a refinance strategy.  I am suggesting that if you are like most families and are going to be in the property 5-7 years, pushing yourself a little bit will likely yield enormous returns.

Our House Purchase Didn't Go Through

I announced a couple weeks ago that we had bought a new house. That announcement was two weeks into our process -- well enough in that I thought it was a "done deal." It wasn't.

On Monday we received an inspection report the seller was responsible for (they were supposed to do it within 10 days of the purchase agreement being signed but they waited until the last minute) that had one item in particular that we couldn't live with. So we canceled the agreement and are staying put for now.

I'll blog more on the process and what we learned along the way -- when I find time to sort through it. For now, I just wanted to get you all up to speed on our situation.

And just so you know, while it is a bummer that we won't get the house we liked so much, we believe that everything happens for a reason and that what's ahead of us is even better than what we hoped to have at this new place.

The Foreclosure Crisis Hits Close to Home, Part 2

I've already told one story about how the current foreclosure crisis has hit close to home for us. Here's another one.

In the process of selling our current home, we were looking at comparative homes near ours that were for sale and ones that had sold -- so we could set the price for our place. One of the homes for sale was previously owned by good friends of ours, a wonderful, honest, trustworthy family that had moved to Colorado this past summer. They had previously had their home listed in the low 200's, but now it was down to $189k.

I said I was surprised that they had gone so low since I thought their plan was to see if they could get a higher price, even if it meant that they were letting it sit for awhile. Then I noticed some red lettering on the listing and asked our agent what that meant. She said, "Oh, that means the place is now owned by a bank. It was probably foreclosed on."

What? How could this happen -- and to good friends of ours? We had no idea!

And just to be clear, we still have no idea what has actually happened (my wife has talked to the other wife a couple times and nothing's been mentioned -- and my wife is hesitant to ask, for good reason). In fact, despite our agent's claim, they still have a neighborhood boy cutting their grass and the home is listed with the same agent, both of which might indicate that they still own the home. That said, if they did go into foreclosure, here's the likely scenario that played out:

• They knew they were going to move, so they had their home fixed up. They painted, put in new carpeting, and had some other major work done to make the house look as good as possible.

• They set the price they wanted to get out of the house -- not at the going market rate.

• While they waited for their home to sell (and assumed they'd get $XXX price for it), they bought a new place in Colorado. While we don't know the price on the new home, we do know the following specifics:

• It was a home in foreclosure.
• It wasn't finished. It still needed some drywall, etc. They had a relative in that area that was going to fix it up for them before they moved out.
• As such, they had to put a decent amount of money into the new place to get it livable.
• It had several bedrooms (six or seven, I believe) and 10 acres of land.
• Somehow we got the idea that the house was in the $500k price range (though this could be way off). What I do know is that they "stretched" to afford this place (the husband told me so a few weeks before they moved.)
• The land had stables, so they bought a couple horses and a few motorcycles/ATVs to really enjoy the place.

• Their home here didn't sell. It's an older home and the market is tough anyway -- and they wouldn't/couldn't move the price down much (though they did some.)

• It got to the point where they were underwater on the home and they simply walked away -- giving the home (and their debt) to the bank. This is speculation, but if the house is bank-owned now, it's the most plausible explanation of what happened.

So, in other words, they bought a new home and some goodies while their credit was good, then dumped the old house for the bank to handle. I'm sure it wrecked their credit (or will soon), but they already have their new loan secured -- so they're "fine."

If this is the case, I'm shocked in many different ways. Shocked that they were in such financial trouble, shocked that they bought such an expensive place given that they couldn't really afford it, shocked that they were dishonest and simply walked away from a financial commitment, and so on. I'm shocked, shocked, shocked!

I did a bit of Google research and it turns out that this practice (called "buy and bail") is rather common (see The Wall Street Journal, ABC News, About.com, and Yahoo). Still, I see it as pretty dishonest. And I'm shocked that people we knew so well and considered honorable did something like this.

We Bought a House

More on this in a couple weeks after we close and things settle down a bit, but just wanted to let you know that we bought a new house. We should be closing in two weeks or so and once it's a done deal, I'll start giving details on how we found the house after looking for two years, the home's specifics, the price negotiations, the inspection, selling our own house, etc. -- all the dirt.

For now, I thought I'd simply make the announcement. And for those of you who are the praying type, we'd certainly appreciate your prayers for a quick sale on our house. :-)

The Foreclosure Crisis Hits Close to Home

A couple weekends ago my son had a friend over to play. The friend's family was moving that day and they wanted him out of the way and we were happy to help. But there was something strange about the move.

To set the scene, we don't know the family well, but we know them "well enough." We see them at church, we sat with them at a dinner event last year, the kids have played together before (the son's been to our house a couple times), and my wife attends a ladies event with the other lady every week -- so they are more than acquaintances. And yet something seemed a bit unusual about their move to a new home. Here are the details as we knew them:

• They were moving into a new home (we had the impression that they were buying a new home, but it could be they are just renting it.)
• The new home is not ready yet (someone's still living there), so they're moving to an apartment for a couple months in the meantime.
• But they haven't sold their current house.

See what's strange? Why move? Why not just stay in your current home until the new home is ready? My wife had asked the lady about the move and she (somehow) side-stepped what they were doing with their current house.

Anyway, when the son was over at our house, he said that they were moving, that he wasn't supposed to say why, but that he did know that they were "kicked out by bank." Immediately it was clear what was happening. They were being foreclosed on. We changed the subject quickly so our kids didn't catch on, but it was clear to both my wife and me what was happening. We had no idea.

Later we talked about it and will send them a house-warming present for their new home (a gift card to a local mass merchant where they can get whatever home stuff they need -- or, if they prefer, groceries) in hopes it will help them out a bit.

It's difficult to understand what happened. They'd lived in the home for a decade, so unless they did something that put them in a bad spot (like borrow again and again on the equity), then I can't see what happened. In other words, they didn't buy too much of a house hoping it would go up and they could refinance. No, this was just a regular purchase for them 10 years ago and they had done fine in the years since.

Of course when we look back on it, there were signs. The dad was laid off a few months ago (though we thought he had gotten a new job.) The mother was going back to school (to become an accountant, no less.) Anyway, it's a sad event all the way around.

All this reminds me of a book I recently received in the mail. Stop Foreclosure Now: The Complete Guide to Saving Your Home and Your Credit is supposed to do just that -- help you stop being foreclosed upon. If anyone out there is in the same situation as my son's friend's parents, you may want to check it out. It looks like a decent resource.

The Housing Crisis Is a Boon for Some

Check this out:

Jason Norton, a 27-year old contractor in the San Francisco Bay area, knows how to handle sophisticated remodeling projects. But these days, instead of installing granite countertops or spalike master bathrooms, he handles the lowest common denominator of contracting work: boarding up windows with plywood, hauling junk to the dump and visiting color-matching scanners at Home Depot and Lowe’s to identify which exterior color will best cover up graffiti.

Norton works for homeowners, but his clients aren’t the usual folks: They’re lenders and banks who have repossessed properties through foreclosure proceedings. With the credit markets in turmoil, home prices falling and foreclosures on the rise, the number of lender-owned homes is soaring.

Banks and lenders are in the business of making loans rather than managing property, so many have little or no staff to oversee the homes’ upkeep. Yet with foreclosures mounting, they have more property than ever before to manage.  That’s why “board-up” guys like Norton have no lack of work.

“The business has picked up quite a bit,” says Norton, who began taking on “board-up” jobs in 2006 and now handles five to 10 jobs a week. “Banks can’t just let the properties sit there.”

I guess in every problem there's always a silver lining for someone...

Why Dumping a Bad real Estate Agent May be a Good Idea

I recently received this comment on my post titled Is It Fair to Dump My Real Estate Agent?:

Just a quick follow up from my comment on 7/29 at 12:51.

My grandmother dumped her realtor. He was a jerk about it, telling her how he had put so much work into the listing during the 1.5 YEARS that he had control of it. Two weeks later after changing to a new real estate agent, she had two offers--one of them for full price, in cash.

We haven't decided what to do yet with our agent, but the results here seem to indicate that a good agent can make a HUGE difference versus a not-so-good one. Hmmmm.

Not Everyone in Housing Trouble is a Deadbeat

Recently had this comment left here on my post titled When You Owe More on Your House than It's Worth (a post I wrote two years ago):

Don't ASSUME that if someone is upside down it's because they were irresponsible and bought their place with a no-money-down loan. SOME of us put down 10 to 15 percent, even 20 percent, and are upside down because this market is really that bad. That is my situation. I bought a home for $270,000 that was appraised around $300,000. I put down 15 percent and the home value has dropped below that. Now my finances are tied in a depreciating asset.

Good point. Some people did it all by the book and still got burned. Of course it only becomes a problem if you have to sell, but still, I thought this comment was worth sharing.

Advice for Home Owners: Don't Over-Remodel (And Some Realistic Remodeling Numbers)

Consumer Reports has some advice for home owners: don't over-remodel your new place. Why? Because you're unlikely to get your money back from the investment. Their thoughts:

Homeowners can expect to get back less of the money they invest in renovations than they would have just a few years ago, according to a survey by Remodeling magazine. In 2005, 10 of 22 projects the magazine listed returned more than 90 cents on the dollar. In the past two years, no project did that well.

A few thoughts:

1. If you're planning on living in the home a long time, then I'd say go ahead with the remodels you want. As long as they aren't over-the-top and don't hurt resale value, you'll get some of your money back in simple enjoyment of the new features. The rest you'll get back when you sell the place.

2. If you can do part of the work yourself, help the guys you hire to do the work, plan your repairs in the off-season or somehow can get discounted rates on the work, you can save a good amount of money and make a better-than-average return on your investment.

In addition to the above, Consumer Reports lists several home improvements, what they should cost, and the value the homeowner can expect to recover. Since almost everyone didn't believe the numbers in my eight home improvements that pay off, you may want to check them out.

We Have a Buyer for Our Home

When I detailed what we might do with our home if we bought another one, here is one of the possibilities I offered up:

Sell it for an extremely low price to a needy family -- We know a few families that simply can't afford a nice home. One would even like to adopt but simply doesn't have the space in their home. Our house has more than enough room. If we sold them our home for, let's say $100,000 (hence the target figure in my net worth), they could afford that. Advantages: We get to help out a needy family AND we get some cash for the house. Disadvantages: It's not the best deal financially. Plus we'd need to REALLY spell out the rules (such as they'd have to live in the home a certain number of years or sell the house back to us for $X -- we don't want to sell to them simply to have them put it on the market and sell it for $130,000.) We'd probably need to get a lawyer involved.

Well, we aren't planning on giving the home away or taking that big of a hit, but we do have a buyer who's interested in buying our home at $20k-$30k below market value if they can sell their home. My wife and I talked about it, and we decided that if they do sell their home, we will sell our place to them. The husband works for a non-profit organization and they are a GREAT family. I don't know their finances, but they're probably near the high end of what they can afford. So when they asked if we'd consider selling them our home at $20k to $30k below market value, we said we would -- at the HIGHER discount number (a better deal for them.) It's not that big of a hit for us financially and it will be a blessing for them -- so everyone wins!

Our only problem: we don't have a place to move to. I've told them that we won't move without a place to go (we're not going into an apartment), so if they sell their home, we'll need to make some quick decisions. But that's a big "if" in this market. Houses aren't exactly selling like hotcakes around here.

But who would have ever thought we'd have a potential buyer before we bought ourselves? Guess the best laid plans often go up in smoke!

How to Pick a Good Real Estate Agent

After telling you all about the stupid way I picked our real estate agent, I thought it was worth quoting Consumer Reports and their thoughts on how to find and hire a good real estate agent. Their thoughts:

Interview more than one agent. Ask around for recommendations and meet with several possible candidates. They should clearly explain how they would market your property and should describe how they handle open houses and newspaper and Internet advertising. Ask whether there will be any advertising costs, transaction fees, or other incidentals that you will be expected to pay. Transaction fees in particular are negotiable. After you select an agent, make sure the marketing plan is part of the listing agreement, so if the plan is not followed, you will be able to cancel the listing and take your business to another agent.

Lesson learned. I still haven't decided what I'm going to do with our agent, though I'm leaning towards having a talk with her and giving her the rest of the year to help us find something. Then if we haven't made progress by then, I'll feel better about switching to another agent.

Key to Selling Your Home: Price It Right

In its September issue, Consumer Reports lists its opinion of what it takes to sell your house in this market. Their thoughts:

Price it right. Trying to make your house stand out by offering potential buyers enticements like a free vacation or a set of golf clubs is so last month. Today it's all about price. Homes sell most quickly if they are put on the market at a price that's just a bit lower than those of similar homes in the area.

Wow, what a stunning revelation. Price, huh? Who would have ever thought of that one? ;-)

I think the main problem with people getting real about price (listing their home at the market price, dropping price if it's not selling, etc.) is that many (most?) of them stretched to buy the home in the first place. Now, they HAVE to have a certain price on it or they're upside down. But they can't get that price because the market is way down. So they're stuck -- they can't afford to sell because they'd have to recognize their loss and they can't find a buyer because their price is too high. It's a tough place to be in.

We've done a couple things to make it easier on our finances to sell our home. They are:

• We bought a home far below what we could afford (and far below what the bank was willing to lend us, btw). We didn't stretch (in fact, we paid cash for the home, so there's no bank loan to worry about/deal with.)

• I reduced the value of the home in Quicken. I know it's kind of playing funny with the numbers, but over the past year I've taken the value of our home down waaaaaaay below market value. So when we sell now, even though it will be below what the house could have sold for a couple years ago, our selling price will be above what our finances say the home is worth. So when we sell in this depressed market, our net worth will actually increase! ;-)

Yes, selling a home these days can be dicey, as I've pointed out. But hopefully the steps above have made it easier for us to price our home reasonably and sell it as quickly as possible (when the time comes) so we can move on with our lives.

For more thoughts on real estate in this market, see these posts:

• Rule for Making Lowball Real Estate Offers

• Can You Afford Your Mortgage?

• Five Signs that a Property Might be Ripe for a Lowball Bid

• How to Tell If Your Home is Overpriced

How to Save Money on Real Estate Agent Fees

Consumer Reports tells us how to save money on real estate agent fees: negotiate. Their thoughts from a recent survey:

You can negotiate the [agent's] fee. The usual 6 percent commission that agents charge sellers has been standard for so long that many homeowners apparently don’t realize it’s negotiable. But 46 percent of the sellers in our poll attempted to negotiate a lower commission and roughly 71 percent of that group succeeded.

Better yet, paying a lower fee doesn't hurt your selling price:

We found that paying an agent a lower commission rarely had any effect on the sales price. And readers who paid commissions of 3 percent or less were just as happy with their brokers’ performance as those who paid 6 percent or more. People who paid extra, in fact, were more likely to say they had regrets about the selling process. The biggest regret? Nearly one-third said they should have been more assertive in negotiating their agent’s fee.

Furthermore, paying less doesn't result in bad service:

The industry generally defends the full 6 percent commission by saying it enables brokers to provide all the services home sellers need. And some of our survey respondents who paid lower commissions did get fewer services from their agents. But there wasn’t as big a gap as you might expect. For example, 81 percent who paid 3 percent or less said the agent provided a competitive market analysis of their home, compared with 87 percent of people who paid 6 percent or more. And those who paid a lower commission were somewhat less likely to have agent-sponsored open houses (54 vs. 59 percent).

So much for paying your realtor a HIGHER fee, huh?

If interested, you can compare what you get for a 3% commission versus a 6% commission. It's not much different.

We've negotiated with our agent to charge us 1% to sell our house if we buy our new house using her. On our end, the 1% covers her handling all of the paperwork (which is worth it), though we know we'll need to do most of the marketing ourselves. The 1% gets us on the multi-list though, which seems to be about 90% of the "marketing" that most agents do.

Anyone Ever Heard of This Tradition?

We're having our house spruced up a bit with some paint. It was a last painted eight years ago and with all those Michigan winters since, it needs a bit of touch up.

One thing we're deciding is what color to paint the door. It was red when we got the home, we painted it hunter green, but now we're wonder what color works best.

Anyway, as we discussed the door colors, we also talked about an "old tradition" that we didn't know was really a tradition or just something we heard around but that wasn't true. Here it is:

When people pay off their mortgage, they paint their front door red.

I searched the web and found lots of speculation on this tradition, but nothing definitive. Anyone out there heard of this before and/or can you find something that says it's either a real tradition or not?

How I Plan to Buy One House and Sell Another

Recently, a reader had this question for me:

FMF, does buying your new house w/cash include the money from selling your current home?

I always wondered how that act is juggled. If you wait to move into your new home before selling your old home, do you carry a mortgage for a few months? If so, will paying it off quickly violate some terms with the bank? Or is the buying+selling just commonly brought as close together as possible?

This is a good question, but one that's not easily answered because of so many moving parts -- whether we buy or sell first, how long before we buy sell, what time of year we buy/sell, and so on. So there are many different ways this could eventually pan out (including us not moving at all), but I'll share my thoughts on two different scenarios -- one if we buy first and one if we sell first.

If we buy first, that would mean one of two things:

• We got a REALLY great deal on the home we're buying
• We will be buying next spring or early summer -- enough time to sell our home before the end of the summer

As you may recall, we made an offer on one home this spring but couldn't come to agreement with the seller. If we had reached a deal with them, we would have had plenty of time to sell our home this summer and have the buying and selling all wrapped up by October. How can I be so confident that we could sell our home in a few months? Because we plan to price it aggressively -- to move. Financially, we don't need to get a maximum sales price from it to make the finances work. We'd rather price it at or below the market and move quickly. Besides, holding two homes is not exactly something we want to do.

In this case, the numbers would look something like this:

• We'd buy a new home for $370,000
• We'd put $100,000 down
• We'd get a mortgage for the rest
• Once we sold our current home, we'd net $160,000 at the worst
• We'd put the $160,000 against the mortgage

At this point, we'd owe $110,000 on the new home. We have about that much in savings (above the $100k above), but that amount has the following in it:

• Savings for a new vehicle we'll need in a couple of years
• Our emergency fund
• Any extra funds we need to fix up the new house (paint, carpet, furniture, etc.)

Given these, we'd probably have $20k or so available to put down on the house, so we may do that or may not. Either way, we'd start making extra payments on the mortgage and hope to have it paid off in a couple years or so.

On the "sell our house first" side, we wouldn't sell unless we had a new place to move to (we're not moving to an apartment or rental home). We could get an offer anytime (we have friends interested in buying our house if they sell their home), and if we do we'd first go back to a home we like and see if we can make a deal to buy it. If we can, we'd set up the buying and selling to happen near the same time. If we can't, we'll either need to figure out something with the new buyer or simply pass on their offer until we can find something we do like. If we were able to work all this out, the finances would be similar to those detailed above.

Buying a house and also having a home to sell is certainly a juggling act. But we've got our finances in a position that allows us some flexibility. In addition, we're using my formula for buying a home, so the new home won't be a financial burden. These two factors combine to make what's often a very difficult situation a relatively easy one to manage.

Is It Hard to Borrow Money for a House Today?

Here's a piece from CNN Money that talks about how difficult it is to buy a home these days. They start with this title and sub-line:

Need a mortgage now? Bring lots of cash. Between higher fees and larger down payment requirements, buyers have to pony up more money than ever these days just to land a loan.

Then they get into details:

Are you ready to buy a house in this crazy market? Better bring a boatload of money to the closing.

In a brutal real estate market where all the players want to hedge against the tremendous risks, down payment requirements and up-front fees have soared, shutting many potential home buyers out of the market.

"I have as many people calling me for financing as ever," said George Hanzimanolis, a Pennsylvania mortgage broker, "but I'm putting less than half of them into loans."

That's happening all over the country, and may slow the housing market's recovery. Indeed, in a Realtor.com survey released today, potential home buyers said high down payments were the second biggest obstacle, after high home prices, to buying a home.

Wow. Sounds like a disaster, huh? How can anyone buy a home these days -- it just seems so daunting. But then we get into the details. Check this out:

These days, home buyers almost always have to make a substantial down payment, at least 5%, according to Rich Wordman, president of the Florida Association of Mortgage Brokers. The days of no-down loans are over.

Ok, so when did 5% become "a substantial down payment"? Answer: it didn't. This piece is simply an attempt to make a story out of nothing. I HATE it when writers do this -- and the money-advice press seems to do this quite often.

They go on to talk about higher rates, more fees, etc., but they lost me at the 5% point. If this is the frame of reference they're using, I'm not reading any more of their trash.

Now I will admit that it's true -- lenders are becoming more cautious. They've been burned and are trying to do all they can to make only solid loans. If you have your financial house in order and follow my formula for buying a house, you shouldn't have any problem. On the other hand, if you're stretching to buy a house you really can't afford, then you're probably going to have trouble. But you shouldn't really be buying a home like this anyway, so I look at it as a saving grace for many people (it will keep them from being their own worst enemies.)

Eight Home Improvements that Pay Off

Smart Money magazine lists eight home improvements that pay off. The piece includes suggestions, average costs, and the percentage of the costs you'll likely recoup. Their list:

• Replacing the roof, $18,042, 67%
• Replacing the siding, $9,910, 83%
• Turning the attic into a bedroom, $46,691, 77%
• Extra closet space, $1,250, 50%
• Remodeling the bathroom, $59,435, 75%
• Minor kitchen upgrades, $21,185, 83%
• Installing an energy-efficient window, $325, 50%
• Minor landscaping, up to $1,000, 100%

A few thoughts on this list:

1. They must be talking about completely replacing the roof -- old shingles and wood off -- new wood and shingles on. Otherwise, it wouldn't cost nearly that much (unless the house is HUGE.) We had our house re-roofed a few years ago and it was somewhere in the $4k range.

2. The "turning an attic into a bedroom" seems like a clear winner to me. I'd do it in a heartbeat if we had a useable attic.

3. Wow. Kitchens and bathrooms are EXPENSIVE!!!

4. Landscaping gives a 100% payback. Good to know. This might be something we think about as we decide to sell our house.

We're not looking to do much to our home since we may be moving and have much of this covered, but for those of you thinking about home improvements and wanting a decent payback, this list serves as a good guide.

Follow Your Home Inspector Around

Here's a great comment a reader left on my post titled Six Problem Areas to Watch When Buying a Home. I commented that if we buy a new house I want to be sure and follow the inspector around and ask him questions. A reader responded as follows:

You definitely want to follow the inspector around. If you find a good one (get referrals) then they will point out things that will come in handy later. They may not necessarily be problem areas but things worth knowing. For example, when we bought our house last year, our inspector told us such things as: that the roof was fine but predicted how it would eventually wear down and what signs to look for to show that it was breaking down, the insulation level in the attic that was up to code but could be improved (and happy to report that it since has been!), improvements that could be made in the drainage system to take it from acceptable to top notch, and so on. In other words, you want an inspector that won't just verify that things work as they should, but will help you understand how they can work better.

Also, I'd shop around. Call at least three companies. It's hard, but if it's possible try to talk to the inspector directly to see if you can get a sense for how open they are. Your realtor should be able to give you a list, but you should also find out from friends or family who is (or isn't) recommended. When you call, make sure you find out exactly what they do and don't do beforehand. On ours, he didn't go all the way through the attic, just looked through the access panel. Same with the roof, he went on the first level but not all the way to the very top (he used binoculars for that). He also wouldn't turn the sprinklers on as there was still a slight chance of a freeze. We found that this was all pretty standard, but make sure you press them to what they will, and more importantly, what they won't do. They'll usually do those other things, but of course for more money, if those things are areas that you are concerned with, and it helps to know that up front.

Some good tips in here. I'm assembling a list of questions I plan to ask the inspector if/when we ever get a new house and I'll share those with all of you at some point.

The Pros and Cons of Paying Cash for a House

As most of you know, my wife and I have owned our home without a mortgage for over a decade now. I'm a believer in paying it off as soon as possible as long as your other savings are covered first. But I know others who could pay off their homes but don't think it's a good idea and prefer to invest instead of paying off their home. It's quite a debate in personal finance circles and there's simply not one, clear choice that works best for everyone.

I've never seen a detailed list of the pros and cons of paying off your house (I'm sure it exists, I just don't remember seeing one) until I ran into this piece from Wise Bread. Here's a summary of what they listed as the pros:

• You do not need a credit history.
• Risk free savings.
• You actually own your house.
• You are not leveraged.
• You can often negotiate a better deal.

And the cons they list:

• Less liquidity.
• You are not leveraged.
• No tax advantage.

They end with a list of the situations when it makes sense to pay cash:

• The amount of cash you spend does not consist of a significant portion of your liquid assets.
• The interest rate on a mortgage is higher than what you can earn on your other investments.
• The amount of savings you get from an all cash deal versus a loan deal is significant.
• You do not want to deal with a credit agency in any manner.

The one I'd add: you prefer to have no debts.

For us, our home does not make up a significant portion of our liquid assets. We have a house that's far below what we could afford and our investments have grown nicely throughout the years. We also prefer not to owe any money to anyone. These two issues are the main reasons we don't have a mortgage.

That said, we probably could do better by investing (though over the past 10 years, it looks like our decision to pay off the mortgage was a good one), but for the reasons above, we'll stick with being mortgage free for now.

Things MAY change for awhile if we buy a new home. Since we're thinking of trading up, we may have a mortgage for a few years depending on what we buy, what we get for our current home, when we buy, etc. We're currently saving at a good rate per month for the new house, and if we don't buy something this year, it's likely that between what we'll have saved and the sale of our current house, we'll be able to pay cash for the new place. Only time will tell.

Is It Fair to Dump My Real Estate Agent?

Here's an issue I'd like to hear your thoughts on: is it fair for me to dump my real estate agent? I'll give you a bit of background and some of my thoughts, then you can weigh in with your opinion.

The Beginning

Two springs ago (March 2007) when we began thinking seriously about buying a new home, I asked friends, family, co-workers and the like for their recommendations on good real estate agents. I got back one response (I guess finding a good agent is harder than most people think). A trusted friend told me that one guy was the best agent he'd ever worked with (my friend worked as a loan officer at a bank.) He said the guy knew our target area and he sold tons of homes. I checked him out a bit online and true enough, he was among the top sellers on his firm's (fairly large) list of agents. (I think he was in the "gold club" or some such designation.)

We asked this agent to our house for an interview to see if he was the real deal. He wasn't. The best I can say about him was that he was less than impressive. He was poorly dressed, had bad interpersonal skills, and seemed somewhat shady. We decided to pass.

We also considered the agent who sold us our home. We liked him a lot on the buying side, but eventually passed on him as well since we thought he wasn't aggressive enough (and we wanted someone who could sell our house too). So we decided to stay on our own for a bit.

Our Current Agent

A month or so later, we met our current agent completely by accident. We called her up to see a property she had listed. We met her at the home and she and my wife hit it off quickly. The agent offered to show us any houses we wanted to see in the future.  So the next time we wanted to look at homes, we called her and she set it up. She also eventually set us up on her website so I could get email updates from the MLS -- giving me lists of homes that fit our criteria. As we received updates on these homes, we'd call her up and she would show them to us. This process kept repeating itself for months, throughout the summer. Then, after taking the winter off, we picked up the process again this spring and have been looking since.

Our Agent's Positives

There are many positives to our agent including the following:

• She's always nice, cheerful, and friendly.

• She's very available and willing to see homes on our schedule (she's probably shown us 40 homes in the past 16 months).

• She has a decent website that sends me the info I want (though it is a bit clunky)

Our Agent's Negatives

Unfortunately, our agent has some negatives as well:

• She's a weak negotiator/representative for us. If we'd had a good, competent agent, I think we would have bought this house. Yeah, the seller was a stinker, but our agent did nothing to work the deal with the other agent. He basically stared her down her and we made no progress. We might have even purchased this house if our agent had been a bit aggressive and worked to get the deal we wanted. Then again, maybe both deals weren't workable. But I do feel she's not really an advocate for us. Not that she doesn't want to be, I just don't think she has the skills for it.

• She's not pro-active. Basically, I'm finding the properties that fit my criteria and sending them to her to show us. She's not looking one bit for us. Yeah, she sets up the appointments, but she's not proactively contributing to our house search.

• She doesn't know very much about the real estate business. I've asked her basic questions and she hasn't known the answer. Worse yet, she'll simply say, "That's a good question!" and forget I asked it. I'd prefer, "I don't know. Let me find out the answer for you."

• She's not on the same page we're on. We've told her time and again what we're looking for and it's simply not sinking in.

My Fault

Ok, before I go any farther, let me state that I'm aware that the way we selected our agent (by accident) is probably the worst way of picking one. Stupid. Lazy. I know, I know, I know. I've kicked myself a million times for letting it happen. Just wanted to state that in case someone wanted to rant about it. ;-)

The Bottom Line

I've basically come to the conclusion that she's a poor agent and we're not served very well by her. And yet, I feel we owe her something since she's put so much time and effort into showing us all the homes. My current plan is to stick with her throughout the summer, then dump her if we don't find anything. This will have given her two selling seasons (April though September) to find something for us.

There is still a lot here that I didn't share due to space, but I at least wanted to put down the basics so you could get a decent overview of the situation. What do you think we should do?

The "Sad Rule" of Buying a Home

I've already detailed how wacky my house-buying experience has been, but here's one guideline I think works. I call it the "sad rule" and my agent stated it this way when we were discussing whether or not we should bid on/bid higher for some properties:

Think about it this way: would you be sad if someone else bought the house at this price? If so, you probably have a good fit for you at a fair price. If not, something's amiss and you shouldn't bid on it at this price.

Since we look at the house-buying process from an unemotional standpoint -- one that's based on fair market value and data (as much as we can get in an often apples-to-oranges comparison of different houses) -- this rule makes a lot of sense to me. And it's helped us walk away from a couple places when the price was too high. Yeah, we might be sad if the place sold (if we wanted it), but if it sold at too high of a price, we wouldn't be sad since there's no way we would have wanted to have been in the buyer's shoes.

That said, this rule won't work for the emotional I-want-it-at-any-price sort of buyer. They'll be sad if they lose a house they "love" no matter what the price is.

What's your take on this rule? Good idea or bad one? Or does it even make any sense to you (did I explain it completely enough)?

I Agree

Here's a piece from Ben Stein that contains many statements with which I agree. I'll list them and give my thoughts as well.

However, let's assume we do have a recession. I hope we don't, but we might. What do we do about it? What can we do about it? Just keep plugging along. Just keep buying broad indexes. Just keep a good chunk of liquid assets. None of us can control the economy. Thus, we just have to keep swimming in the roiled waters.

That's about it. All you can do is keep plugging along. If history is any indication, we'll eventually pull out of this economic downturn and those who have kept at investing as normal (or even buying more than normal) will do very well financially. And if we don't pull out of the downturn? Then we're all in a heap of trouble.

As we cling to our life jackets, please remember this: no recession lasts forever. I can well recall so many times in the past when every single headline in The Wall Street Journal was about some record growth of sales or profits. Then time passes and every single headline is about horrible news. Then time passes and there is mixed news, and then it's all good news again.

Yes, yes, yes! It wasn't that long ago that we were in boom times. And it wasn't long before that when we were in down times. And it wasn't long before that when we were in boom times. And, well, you get the picture. Wait it out, keep the faith, and everything will be well in the economic world once again.

Economies go through cycles. But the long-term trend is up, and people who buy broad indexes when the news is bad, if they live long enough, live to be happy about it.

My strategy exactly.

Yes, there will be news saying housing will not recover THIS TIME. But in fact, except in really depressed areas, housing recovers EVERY TIME and goes on to pass its prior record.

It always surprises me when someone leaves a comment here along the lines of "this time is different" or "this time we won't recover." really? Does anyone REALLY believe that? If so, my bet is that they are relatively young and/or haven't studied their history.

The plain fact is that you don't know when real estate will be at bottom until it's too late. If you see a home you love, buy it now if you plan to be in it a long time.

Good point -- and one I need to listen to. If we find a home we like and plan on staying in it a long time, we shouldn't worry about it going down in the short-term since we won't be selling in the short-term. Of course it would be great to buy at the bottom of the market, but who can predict when that will occur?

And know that the headline writers want to whip you up and make you crazy about the economy. They sell fear. Stay calm and stay well to do.

We all KNOW that the media THRIVES on over-exaggeration and bad news, and the economy is simply the current whipping boy. Yes, things are bad, but we're not teetering on the edge for financial collapse as Constantly Negative News would have us all believe. Keep spending less than you earn and keep saving/investing. Do this for a long time and you'll be rich. It really is that easy.

Rule for Making Lowball Real Estate Offers

Here's a comment left on my post titled Five Signs that a Property Might be Ripe for a Lowball Bid:

As a real estate investor, I had to get used to making "lowball" offers. My motto became "if I'm not embarrassed by the offer, I bid too much". Now I'm buying a residence, obviously the process changes some because the houses are in better shape, but some similarities exist. I also learned that even when a lowball offer is rejected, sometimes they call you back later on when they eventually come to reason or have a circumstance change. If you bid to a bank on a foreclosure, they are famous for this.

I've heard several stories as well of sellers coming back to people making an initial offer. Then again, I've also heard of sellers being offended and not wanting to work with buyers if they bids too low. Or are those latter stories simply tales told by real estate agents to get higher offers?

So, what do you think about the "if I'm not embarrassed by the offer, I bid too much" approach to bidding on a home? Maybe not right all the time but works in this market?

Even the Rich Can Buy Too Much House

A key part of my formula for buying a house is to purchase a house you can afford. And just like someone with a large income can spend more than that income and become worse off financially, people who are well-off can also get themselves in trouble by buying too much house. Check out this place that the owners are now putting up for a closed-bid sale:

26,000-square-foot dream house on 30 acres [in Greenwich, Conn.]

The Cheslocks, who sold their previous home in Greenwich for $12 million, bought the property for $7 million in 2000, spent nearly $14 million and four years building the house, and put it on the market in 2006 for $31 million.

As the real estate market slowed and the overall economy worsened, the couple grew anxious, not least because a merchant banking firm that Mr. Cheslock co-owned lost $100 million in value, leaving his net worth at, by his own off-the-cuff accounting, “something just under $100 million.”

So, borrowing a page from the foreclosure world, the Cheslocks on Friday opened a five-week auction with bids starting at $19 million.

“Like two-thirds of what we think it’s worth,” Mrs. Cheslock said.

The upkeep, more than $200,000 a year, was part of what soured the dream.

Ok, these people aren't in a desperate situation, but it appears to me that they're selling in part because the house is too expensive and their income (though it doesn't say this) has probably taken a hit. Yes, part of the reason is also that it's simply too big for two of them, but didn't they know that when they started the process?

I think it's a clear case of someone buying too much house -- more than they could afford and more than they could take care of. And now they have to sell in a down market and take their lumps like everyone else. But, boy, are those big lumps!

Six Problem Areas to Watch When Buying a Home

The Street lists six problem areas to watch when buying a home as follows:

• The Roof
• The Walls
• Turn On the Water
• The Furnace
• On the Floor
• Pool Patrol

If you're buying a new house, be sure your inspector checks each of these areas. (It's likely he will anyway, but you want to be sure.) I also recommend following him around when he does the inspection (you're paying him after all, so you are entitled to do this) and asking questions/discussing issues along the way. Especially have him check items (furnace, AC, hot water heater) that are old and nearing the end of their useful lives.

As most of you know, we're house hunting and could be needing an inspector at any time. I've started to keep a file of questions to ask/issues to address no matter what the house and I'll add the list above to my collection.

Where You Live Can Make or Break You

Here's a piece on the real estate market that I found today but the comments that stood out to me are as follows:

Doug Gylfe still can't afford to buy a home in Torrance, Calif., despite a 23 percent drop in prices.

In Torrance, the coastal city 16 miles south of Los Angeles where Gylfe lives, the median home price in his Zip code has fallen from a peak of $830,000 two years ago to $636,000. But that's still twice what Gylfe can afford on his salary as a real estate appraiser.

"I've lived here since I was about 10 years old, so I really like it," said Gylfe, 53. "I would stay here in a heartbeat if I could afford something."

What this reinforced to me: where you live has a MAJOR impact on your finances. Sure, you have the choice to live wherever you want. But if you choose certain cities, you're going to pay to do so.

Our Real Estate Agent Has Never Met Sane People Before

We recently went back to the house we put a bid on. The seller is finally coming to the realization that there's a difference between what they'd like to sell the house for and what the market value of the place is. They just dropped the list price by $15,000 (after dropping it $10,000 after our offer) and, according to my estimates, they are just entering the top end of the fair market value range for their property (based on sales of comparable homes.) The problem is, there's one house in particular that's about to sell (it has an agreement in place) that will lower the comps even more -- so it's likely their house will soon be worth even less than it is now. Of course, they don't want to hear that.

Anyway, after we looked over the place again, I had a conversation with our realtor. I told her that we were looking for a good house at a fair price (she agreed that our first offer was more than fair given the current market) and she said she just didn't understand that. She told us that her other clients simply "found homes they loved" and "would pay whatever it took to get into them." As we talked more, it became apparent that many of her other clients became too emotionally attached to specific homes/properties which put them at a huge disadvantage when it came to negotiating a price. I laughed and told her that we weren't emotionally attached to any house (and we weren't going to be), that we looked at it from an objective, fact-based standpoint (as much as is possible), and that we'd do the same thing when selling our home. She understood what I was saying, but she kept shaking her head in disbelief. She simply hadn't ever (or at least on a regular basis) seen a couple approach house-buying without a huge amount of emotion moving them this way or that way.

Given her reaction, it's no wonder that people routinely over-pay for homes. They see a home they just "have to have" and get emotionally tied to it. Even though they only wanted to spend $X, they end up spending $X plus something. And more likely than not, that "something" isn't a small amount. After all, we're talking the cost of a home here -- where a price can move $5,000 or $10,000 without much thought or care.

Sellers aren't much better. People are also emotionally attached to their homes (if you doubt it, look at some of the comments on this blog) and have "in their mind" what their home is worth. Many times, especially in today's market, this is a good amount over what a buyer is willing to pay and the seller's home is simply over-priced. That's a key reason I'm seeing many homes sit on the market for months and in some cases even years. That said, it looks like sellers are starting to get a clue as prices are falling over the past month or so. I think it's about to get interesting.

As for us, the home we're interested in may or may not sell at the new price -- only time will tell what happens. But if it sells at a price that we consider too high, there won't be any sad feelings on our part. As I've said, we're looking for a good house at a fair price -- not a good house at an expensive price. And we like the home we currently have, so if need be we're willing to live there for many years to come. I'll keep you updated as we progress.

It’s a Strange Real Estate Market

I found this piece from MSNBC to be interesting:

As mortgage defaults and foreclosures continue to rise, the impact is spreading well beyond those who are losing their homes.

In communities across the country, msnbc.com readers report that local governments are coping with shrinking tax rolls, lenders are saddled with more foreclosed homes than they can sell and empty homes in many neighborhoods are being vandalized.

In hard-hit states like California, Arizona and Florida, readers report that some neighborhoods are becoming virtual ghost towns.

In South Lyon, Mich., life is getting lonelier as more houses are abandoned in Jose's neighborhood.

We've had a few impacts from the housing crisis in my neighborhood as follows:

1. A few blocks from us, a friend of ours is moving and having a very difficult even getting someone to look at their house. It seems to be somewhat reasonably priced (maybe a bit on the high side, but not unreasonable) and they've put a TON of money into it to upgrade the look of the place. And with all of that, they've had a handful of lookers in three months on the market.

2. A few blocks the other way, an abandoned house sits on the corner, it's deck collapsed and it looks as if it could have been broken into at one point.

3. Two doors down from us, the old owner moved to a newer place a couple years ago, and couldn't find a buyer for his home. So after a year on the market, he rented it out to a family who lived there for several months. A couple weeks ago, we found out that the family had skipped out in the middle of the night, leaving the owner (presumably) without his full amount of rent and now with an empty house that he needs to do something with.

On the buying end, we're also seeing all sorts of stories -- foreclosures for 60% of what the house was once worth, homes on the market for years with no apparent activity, and the inventory of options building and building.

It certainly is a strange time in the real estate market here.

Can You Afford Your Mortgage?

I've talked several times about my formula for buying a house. A key part of what I suggest is to buy a house you can easily afford. To do this, I've suggested the following (from the book The Millionaire Next Door):

If you're not yet wealthy but want to be someday, never purchase a house that requires a mortgage that is more than twice your household's total annual realized income.

The Street chimes in on this subject with a bit of a different take. They detail the financial ratios lenders look at when deciding to give you a loan or not:

Lenders use two separate guidelines to decide if you qualify for a loan: the housing-expense ratio and the total-obligation-to-income ratio.

The housing-expense ratio compares your monthly income before taxes with your housing costs, which include your mortgage payment, real estate taxes, mortgage insurance (required if you make a down payment of less than 20%) and any association fees or dues. In general, your housing costs shouldn't surpass 28% of your income.

The total-obligation-to-income ratio, meanwhile, includes your housing costs alongside other liabilities, such as long-term credit card debt, auto loans, student loans and alimony payments. Together, these monthly expenses should not surpass 36% of your monthly income.

These obligations are less strict than the formula suggested my me and The Millionaire Next Door. Then again, mine is a suggestion on what to do if you want to become wealthy. The bank numbers provided by The Street reflect the MOST banks will want to lend you. Big difference between the two.

One final reminder: no matter how much a bank will let you borrow, don't let them tell you what to borrow. Decide for yourself what you can afford and live with and go with that amount. It's your money and your financial life, so don't let a bank (that's motivated by making the most off you as possible) dictate any part of your finances.

Five Signs that a Property Might be Ripe for a Lowball Bid

As most of you know, we're house shopping -- trying to improve our housing situation (better location and some land) during the recent drop in housing prices. If we can find a good place at a great deal, we'll be moving!

As such, anything related to buying or selling a house is high on my radar. And I was particularly interested in this Newsweek piece that listed five signs that a property might be ripe for a lowball bid. Their list:

• The seller has to move, or has already vacated the property.
• The home has been listed 90 days with no price change.
• The seller has plenty of equity in the property and isn't at risk for being "underwater."
• The home is the last one in a new development.
• The home is being sold as part of a divorce or estate sale.

In my experience, this is a good list, though someone needs to tell this seller about these factors. They have already moved and are nearing 90 days with no price change, yet they somehow think the market is solid at this point in time. Strange.

We also looked at a home in foreclosure a couple weeks ago that fit much of what we're looking for, though it's a bit "over-the-top" size wise. The details on it:

• 4,800 square feet
• Four years old
• In a great township (the best in our area)
• On 10-acres of land
• Was on the market a year or so ago for $569k (when the owner was trying to sell it)
• The fair market value based on the comps in the area is somewhere between $488k and $550k (I have two methods that use comp sales to estimate current value of places we see)
• The bank is offering to sell the place at $425k

As I said, it's a bit over-the-top for us. We're a family of four and we really don't need 4,800 square feet (who does?). That said, we'll keep an eye on it and if the price gets crazy (in the $300k range) we might bite. It does need new carpeting and paint (strange for a 4-year-old house) but it's in pretty good shape otherwise.

Update: The "over-the-top" house sold this past weekend (I wrote this post late last week.) In a month or so when it closes, I'll know the price, but even if it sold for list price, it's a great deal for someone.

How to Tell If Your Home is Overpriced

Here's an article from the Wall Street Journal that many of the home sellers and realtors in my city need to read. It lists some situations when the house you're selling may be overpriced and includes a few good tips/rules of thumb. But here's the one-sentence summary of the piece that really stood out to me:

Ten showings and no offer or two weeks with no showings, you are probably overpriced for the current market.

I had never heard of this rule-of-thumb before, but it makes sense. If you aren't getting showings at all, it's probably very directly related to the price being too high. Ten showings and no offer could be something else (maybe the house simply shows poorly), but assuming that's not the case (and the seller's realtor should be asking people/other realtors about each of the scheduled showings and the resulting opinions to see if there's a problem), then price is probably the issue.

But who follows this rule? No one. Otherwise, prices would be coming down much faster. I'm currently tracking about 20 homes in my area and maybe one of them lowers its price every month. In fact, I'm seeing more people simply give up and take their homes off the market (which is a viable strategy if you can afford to wait a couple years) that I am seeing people lower their prices. But most of all, people are just sitting there. Their homes aren't selling and they haven't lowered the price one bit.

It's certainly a strange situation.

Seven Landscaping Tips that Offer the Best Return for Your Dollar

CNNMoney lists seven landscaping tips that offer the best return for your dollar as follows. They break the list down into two groups -- a set of suggestions if you're going to sell your house in a year or less and another if you're improving for the long-term. Let's start with the "less than a year" suggestions:

• Edge the beds
• Nourish the grass
• Scatter color throughout

Keys to these ideas: they aren't that expensive, so it's easy to see a good return on them.

Since our house could be on the market at any point (if we buy a new house), I've been taking a lot of extra time to make sure the outside looks good. The grass has been fertilized and edged, the roses are coming in nicely, our trees have been trimmed to best reflect upon the home, and my wife has planted flowers in the front. It's looking so good, we may not want to move! ;-)

As for longer-term pay-outs, here's the list from CNNMoney:

• Cut back the jungle
• Add drama with foliage
• Consider new angles
• Cover your rear

We have the first and last one already covered. I regularly trim/prune our trees, bushes, and plants to make sure their growth doesn't get too wild. And we have woods in our backyard, so it's already "covered." As for the other two tips, I have made several changes over the past few years. The biggest was that we removed three huge stones that were overgrown with a juniper bush from our front yard and replaced it with a rose garden. Much better indeed!

What else am I doing? I'll water the grass (at least in the front yard) throughout the summer, though based on the rain we had a week or so ago, I may not need to water until September. I'll also keep an eye out for weeds. I've put down weed killer, but those devils have a way of sneaking in the yard anyway if you aren't careful. ;-)

Circumventing Realtors and Negotiating Directly

In my post titled Sometimes Realtors Make Things Worse, I noted that a recent seller's agent we came into contact with seemed to hinder the process of us buying a place rather than helping it along. There were several worthwhile comments on that post, and I'd like to share one in particular with you all:

I have bought and sold homes with and without agents as well. I had a much better experience without the agent. When I sold my home, I sat across the table with the potential buyer as we negotiated face to face. No middleman trying to position a statement or manipulating information to their advantage. We did such a good job negotiating that we even made a deal for an exchange of my grill for his car top carrier. Never would have happened with agents.

The agents know that their bread and butter is the MLS. They are nothing without the database. They don't drive customers to a house. They wait until someone finds it in the MLS and visits. A recent court ruling said that realtors can no longer box out the low cost realtors from the MLS. Now everyone gets access to the database. This is going to hurt the real estate business. Six percent commissions are going away for good....and they should.

A few questions come out of this comment:

1. How do you get to the seller directly so you can negotiate with them? Their realtor is usually a roadblock, plus their names aren't always readily available. If they live in the house, it may be easier to track them down, but what if they've already moved out?

2. Is this ethical/legal to do? There's nothing forbidding you from circumventing the realtor, is there?

3. (A bit more to my specific situation) I have the email of the seller of the home I'm interested in (it was forwarded to me as part of an earlier response on an offer we made.) Up until now, all communication has gone through our two realtors. What do you think about me contacting them directly for some person-to-person negotiation? Good or bad idea? Fair to the agents? Ethical? Cheesy?

Sometimes Realtors Make Things Worse

Here's an interesting comment I received on my post titled Is Selling Your Own Home Worth It?:

I've purchased two houses. Both were cases where I did not shop around for a house, but a house I liked went up for sale. One was sold by owner, and the other owner already had a sellers agent. The sellers agent insisted that I have a realtor, so I went through ZipRealty and used an agent that would refund some of that 3%.

I had always figured that using an agent would make things easier, since the first time I bought without one. You know what? The annoyances were really the same and having two realtors as middlemen didn't help all that much. In fact, it made things slower, and some of the stress higher. I wish the seller had at least tried putting up a for sale by owner sign. I would have bit. (and the realtor initially didn't want me putting in an offer since there was already a contract and a backup offer. Funny, in the end it was me who bought it. The same realtor who poo-pooed me got money despite that. What the heck kind of system is this to reward such behavior????)

I don't think we really need to be paying agents 6% to sell our house. That can be a ridiculously high amount of money. Hire your own people to market, fix up, and photograph your house, and you'll probably do a better job than a lot of sellers agents. Even if you don't want to bother with all that, just dropping the price by up to 6% could get you a lot of people interested pretty quickly.

That middle paragraph is the one that really hit home with me. We have one property that we've bid on and the seller's agent has been a real pain in the you know what. It's almost as if he doesn't want us (or anyone?) to buy the place. Sure, I understand that he's trying to get the best price for his client, but isn't a "good" price now better than a "better" price a year from now (which is reasonable to expect given the market conditions)? Apparently not. And not only that, his attitude has been very antagonistic from the get-go.

I guess what I'm trying to say is that if you're going to use a real estate agent to buy or sell a home, be sure you pick a good one. But that begs the question -- how do you find a good one? Sales results? Interviews? Referrals?

Five New Rules for Home Buyers

Money magazine lists the five new rules for home sellers as follows:

Rule 1: You can't time the bottom. Face it: The house you buy today will more than likely be worth less next year. That could get you thinking about trying to time the bottom. Resist. It's harder to do than you think, and this is the best buyers have had it in two decades, with inventories up and mortgage rates low.

Rule 2: One reason to buy now - mortgage rates. Homes are plentiful and will remain so, but financing will be getting more expensive. That means there could be a penalty for waiting to buy even if prices fall more.

Rule 3: Another reason to buy - rates on big mortgages. Mortgages in amounts greater than $417,000 - the limit for buying by federally sponsored mortgage agencies - usually run a fifth of a percentage point above conventional products.

Rule 4: Don't buy cheap; buy good schools. Go for areas with highly rated schools. They generally fare better during downturns, and that pattern is holding today, according to a recent study by real estate site Trulia.com.

Rule 5: Make sure your agent has your interest at heart. The real estate game has a built-in conflict of interest, since the listing agent and your agent both get paid by the seller. And these days more sellers are offering extra cash to buyer's agents. So make sure you're not being steered to a house that's better for your agent than for you.

As you know, we're looking at homes right now (and we have been for a year.) Here's my current thinking regarding these five:

1. I have to keep reminding myself of this fact over and over. We'll be getting a GREAT deal (compared to only a couple years ago even) on whatever home we buy and we don't want to miss out on a home we really like simply because we want to buy it at the very bottom. Even if we buy now and the home declines in value over the next two years or so, it's likely that it will at least be back to even a few years after that -- especially if we buy a good home with a good location and great schools.

2. If you pay $5,000 more for a home now but lock in a mortgage rate that saves you $10,000 over the next few years, it's better to pay more now and save in the long run. This isn't that much of an issue for us as we'll put down a large downpayment, then another big chunk once our home sells. At most, we'll probably keep a mortgage for three years.

3. Doesn't apply to us.

4. See my comments on #1. This is one reason we want to move -- better schools mean better re-sale/value.

5. We have a good agent, but I don't think she's got our interests totally at heart. In fact, I don't think any agent would. They want to sell a home as fast as possible, and I'm totally aware of that. So while we have an agent that "represents us", I take responsibility for making sure we watch out for our own interests -- we don't simply assume that she will.

Five New Rules for Home Sellers

Money magazine lists the five new rules for home sellers as follows:

Rule 1: Get real about price. Too many sellers set their price based on yesterday's market. Big mistake. "The first buyers in tend to pay the best price, so you need to price it right at the start," says Pamela Liebman, CEO of the Corcoran Group brokerage. Set an asking price 10% below what homes like yours have been selling for. That raises the odds of your getting multiple offers.

Rule 2: Vet your agent - especially if it's you. Selling on your own in an unprecedented slowdown means you'll have to work awfully hard marketing your home.

Rule 3: Pimp your house - hire a home stager. To sell today, you've got to glam up your home.

Rule 4: Cash will make your home look even better. Given the number of listings out there, you want to throw in a little something extra to make your house catch the eye of buyers and their agents. Rather than hand out a cruise or a car - skeptics might wonder why you're so desperate -offer something that will make your home more affordable, such as paying part of the buyer's closing costs.

Rule 5: Underwater? Learn to swim. If you're a recent buyer, your mortgage may well top what your home would go for today. If a job or family issue compels you to move, your options aren't great, but you have a few. First, you may be able to persuade your new employer to make you whole on the loan. Second, if the rental market in your area is strong, you can become a landlord and wait out the slump. Third, of course, is to sell for as much as you can (see Rule No. 1) and raid your savings for the difference.

As you know, we're looking at homes and could be a seller at any point in time (right after we buy.) Here's my current thinking on what we'll do regarding these five:

1. We've done a comp study on our neighborhood so we know what people in like homes are asking and what they're getting. In general, they're asking way too much out of the gate and sitting on their homes for MONTHS. We plan on pricing near what the market is selling for and turning over the property quickly.

2. We're planning on using the agent we'll buy from as our seller as well (we got her to reduce her fee from 3% to 1% if we agreed to buy a house using her.) But we're not planning on leaving most of the work up to her. We'll market the home ourselves (more on that when we do it) and we'll try to find a buyer just as much as our agent will be looking for one.

3. We're taking the three important steps in making your house sell. We're already removing clutter, doing a bit of painting (we'll hire a painter to do more), and if we buy, we'll move many items to the new place asap to free up space in the home we'll be selling.

4. Hopefully, we'll cover this in point #1.

5. We own our home outright, so there's no mortgage. Plus, I have the home in Quicken at an unusually low value, so it's likely that our net worth will go up when we sell our current home.

Three Factors that Reduce a Home's Value

Smart Money list the three factors that reduce a home's value as follows:

• Foreclosures -- A study co-authored by Geoff Smith, vice president at the Woodstock Institute, a policy group in Chicago, found that each foreclosure within an eighth of a mile of a single-family home results in a 0.9% decline in the home's value.

• Environmental threats -- A home located within a mile from a landfill, for example, will likely see a 10% to 15% reduction in value, says Robert A. Simons, a professor of urban planning and real estate at Cleveland State University and author of a 2006 study on the effects of environmental contamination on real estate values. Property within two miles of a Superfund site (a government-designated hazardous waste site) could suffer up to a 25% reduction in value (compared with a home that had no threat of environmental contamination), says Simons, who also wrote "When Bad Things Happen to Good Property."

• Crime/Sex offenders -- The closer a home is to a registered sex offender's, the greater the impact on its value, according to James Larsen, a professor at Wright State University in Ohio. Larsen's 2003 study of home sale prices in Montgomery County, Ohio, found that, on average, homes within one-tenth of a mile of a serious sex offender's residence saw a 17% drop in value, while houses between one-tenth and two-tenths of a mile sold for 10% less.

My thoughts on these:

1. Not much you can do about this one. Even "good" neighborhoods are seeing foreclosures these days. Maybe even more so than other neighborhoods since many of the problems stem from people over-stretching their payments to live in "nice" areas.

2. Need to check this before you move. Again, not much you can do after the fact.

3. I checked Family Watchdog as they suggested. Scary stuff.

Is Selling Your Own Home Worth It?

What's your take on the "hire a real estate agent to sell your home" versus "sell your home yourself" debate? A few thoughts from US News:

While the potential savings are large, so is the task of selling one's home in today's downtrodden market. "It's much more complicated than just putting an ad in the paper and showing your house and having someone buy it," says Judy Moore of Re/Max Landmark Realtors in Lexington, Mass. "The value that a Realtor brings to the transaction is that they are able to provide services on so many different levels—things that sellers can't even anticipate in many cases—because they have that kind of professional experience."

To be sure, there is nothing a real estate agent does—setting the asking price, marketing the home, arranging open houses, enlisting a real estate attorney to handle legal documents, negotiating with buyers, and so on—that self-starting home sellers couldn't do for themselves. But since the process is filled with time-consuming and tedious hassles, independent home sellers have to earn every penny they save by cutting out agents.

Here's my take -- if I have an agent beating the bushes AND I'm beating the bushes too -- plus if we price our house correctly when we decide to sell -- then we may be able to get it sold in a decent amount of time. Otherwise, it could be on the market for a good, long time.

Really?

From the Captain Obvious file -- it appears that it's a buyer's market in housing.

Glad the Wall Street Lournal could bring us this late-breaking news. Sheesh.

How to Get Your House to Sell

Parade magazine recently listed some suggestions on how to make over a room for $100. It's a list of how home sellers can make small but meaningful changes in their homes in order for it to show better -- and ultimately sell faster and for a higher price. They have three major categories of suggested changes as follows:

• Conquer That Clutter -- Most of us buy things we don’t need, then agonize over where to put them all.

• Perk Up Walls With Paint -- Paint is the most dramatic and least expensive way to make an impact in a room. It adds color and character and can give the illusion of extra square footage.

• Mix and Match Your Movables -- A budget-friendly way to get out of a decorating rut is to rearrange your existing furniture.

After seeing 30-40 houses over the past year we've been looking, I can say that these are excellent suggestions. Homes that are uncluttered, arranged nicely and have a good paint scheme certainly show much better than those that don't (and the ones that have none of these going for them are really, really bad.) Yes, these are pretty basic (and inexpensive) suggestions, but they can make a world of difference -- especially in this market where there is so much competition and rapid price declines for sellers. It really takes so little to stand out and help the home put its best foot forward -- why wouldn't a seller take the time to make these changes?

One thing I want to re-emphasize before I end this post is the following quote:

"Paint is the most dramatic and least expensive way to make an impact in a room."

Certainly something every seller should consider is how to spruce up his home with a bit of paint here and there.