Homes and Real Estate

Which way will the housing market go? That’s the million-dollar question for so many Americans who are underwater on their mortgages and for the one in three who rents and represents the homeowners of tomorrow.

We’ve all heard about how real estate prices have crashed. But in every time of hazard, there’s also great opportunity to build long-term wealth. You just need the guts to zig when others zag.

In this chapter, I’ll show you how you can score a deal on a distressed property, reduce your mortgage interest rate, lower your property taxes, and save money on some of the major purchases for your home, like appliances. I’ll also warn you about common pitfalls, including burglar alarm monitoring and home warranties and other things that are way out there, like electronic mortgage fraud.

BEFORE YOU BUY

Short sales and deeds in lieu are the new foreclosures

Whether you’re a buyer or a seller, a short sale or a deed in lieu of foreclosure may present a way to get out from underneath an upside-down house or get a great deal on distressed real estate.

For a seller, a short sale is one in which you work with a lender to market your home and sell it for less than the mortgage balance. While short sales were once considered more favorable than foreclosures, now both harm your credit to the same degree, lowering your score by roughly 140 to 150 points. As a mark on your credit file, they’ll each stay with you for seven years.

For a buyer, a short sale can mean getting a home at a great price if you’re willing to play what can be a long waiting game. About two years ago, lenders agreed to guidelines in which they were supposed to acknowledge an offer on a short sale in four days and answer back in forty-five. But that never happened in practice, and typical wait times on an offer are substantially longer.

Joel Larsgaard, at twenty-seven years old the youngest producer on my radio show, recently put bids in on seven short-sale properties, month after month, for the better part of a year. All his offers were turned down. Finally, his eighth attempt worked, and he got his short sale for $89,000 with a fifteen-year loan at 4.375 percent. The property had last sold for $155,000!

It took great sacrifices for Joel to come to the closing table with enough money for a 20 percent down payment. But he did it, and now his monthly mortgage note is $560, not including taxes and insurance. Think about that. Some people have monthly car payments that are higher than his mortgage payment.

One special warning for sellers: Be careful with the paperwork your lender gives you as part of the short-sale agreement. Some lenders are behaving immorally and slipping in legalese that makes their financial loss your legal obligation to pay back. That is not the intent or purpose of a short sale.

In today’s market, deeds in lieu offer what I believe is a better alternative to short sales for sellers. With deeds in lieu, the bank agrees to take your home back without foreclosing on it. It also agrees not to seek deficiency, which is loss on the loan that banks are entitled to in most states. As a bonus, deeds in lieu have much less impact on your credit score than does a short sale or a foreclosure.

So at this point I’m recommending that if you absolutely need to get out from under your house, a deed in lieu should be your first choice and a short sale your second.

CLARK’S GREATEST HITS
Consider distressed real estate
There is just so much opportunity in buying foreclosures, short sales, and other distressed real estate at this point. But a few words of caution are also necessary.
The Internet gives the false impression that you have access to every bit of info and every tool you need to determine real estate value. But as a real estate investor of more than thirty years, I say that you should never buy by remote control. You’ve got to know the community, the neighborhood, and even the street where you plan to buy. My rule of thumb is to buy 20 percent below fair market value for homes and 30 percent below fair market value for condos.
Distressed real estate in the condo market has a lot of hazards in particular. For example, when you buy a condo, you’re buying an obligation and a commitment in a condo association. Do not buy in a building that has been constructed recently. You want to look for established condo buildings that have been there six years or longer. With established buildings, you know that most people are paying their condo fees.
In fact, you should never buy early in any new development. If you do and the builder goes belly-up, you could be living next to scarred earth that’s been homogenized for development and looks just awful.
If you’re looking for distressed property in the single-family home market, you want several things: an established neighborhood that’s ten years or older, a neighborhood where it’s mostly owner occupied, not rental, and a house that is structurally sound with cosmetic damage only.
I’m not a fan of buying foreclosures on the courthouse steps because you’re competing against too many skilled buyers who do that for a living. HomeSales.gov will allow you to check out foreclosures in your area. Once you find a property you’re interested in, you have to work with a real estate agent, broker, or servicing representative to submit an offer.
One final warning about buying foreclosures: Most foreclosures are bought outright with cash. It’s very important to protect yourself from the possibility that someone might come along and contest your ownership of a foreclosure. You do this by purchasing owner’s title insurance (aka simultaneous title insurance). Don’t rely on the title insurance the lender buys; you need your own.
When the company I worked for shut its doors in 2008, my wife and I were in pretty good shape financially. We had saved up a rainy day fund and held no debt other than our mortgage and one car loan. During the nine-month span that it took me to land another job, I realized my long-held goal to buy and manage some rental property.
After taking out a HELOC against our primary home, we bought 3 houses. Each house was an REO foreclosure that had spent a long time on the market. I made fixing these houses my full-time job. I left home each day to fix the houses up (and listened to the Clark Howard Show while working).
Being a landlord is not easy, but I am proud of our rental homes. The rental income is slowly helping us replenish our depleted savings and allowing us to pay down the HELOC. Before recently having to evict a tenant, we enjoyed an occupancy rate of 37 out of 38 possible rental months.
The best part? The fact that we bought the homes from some of the “giant monster mega-banks” for an average of about 10 cents on the dollar from what they sold for in the peak of the market!
Mike M., GA

Never buy property without looking at it

Over the years, con artists got notoriously rich by selling people Florida swampland. This rip-off was especially popular in the 1960s and 1970s when future retirees bought property that was basically worthless because it was all wet. It became such a well-known scam that it didn’t work anymore—until the mid-2000s when what was old became new again and the con artists came back to prey on another generation.

Sometimes people are all too quick to buy a dream and will suspend disbelief to buy land without seeing it. One of the new equivalents of swampland in Florida has been desert land in Utah. The New York Times reported that Box Elder County, Utah, intended to file charges against cons who had sold parcels of land over the phone and Internet to three thousand people in the United States, Europe, and Australia.

The land was supposedly adjacent to a metropolitan city. But when people would go to Utah to see their new homestead, they’d find that no such city even existed. Worse still, the land they’d purchased could not be developed because to do so would violate local and state zoning laws.

This new twist on the old rip-off scheme of land speculation started when cons took advantage of a Utah land rush and bought up property that was parched and desolate. Then they illegally subdivided the land and sold five-acre spreads.

The New York Times article was cute in a way. They sent a reporter to find one of these “conveniently located” parcels in Lucin, Utah. The reporter got to the location—some 150 miles away from the nearest big city—and found an area where the only inhabitants were a snake, a beetle, and large ants!

I have two simple rules to follow when buying land. First, never buy property without seeing it. Second, make sure the land has water rights or it’s going to be useless to you. This second caveat is especially important if you’re buying in one of the mountain states, like Utah.

Use a home inspector before buying or selling

If you are considering buying a house, I urge you to have your own inspection. First-time homeowners often skip the inspection because they think government workers have somehow inspected the house. Although they have, these kinds of inspections are not enough.

Think about when a hospital, school, or office building is erected. There is a construction manager who makes sure things are being done as they should be. You want someone who does the same thing for you. It’s especially important if you’re having the house built.

Be sure you don’t hire an inspector that your real estate agent recommends. Recent reports show that 70 percent of people do this. Agents suggest only those inspectors who they know will not kill their deal, and that is not in your best interest. You want someone who will kill the deal if the house is not in good shape.

Two sites that offer great referrals are the American Society of Home Inspectors’ website at ASHI.com and the National Institute of Building Inspectors at NIBI.com. NIBI requires that its inspectors carry errors and omissions liability insurance, which means they accept responsibility for any oversight.

You also want someone who is certified by the Council of American Building Officials (CABO), which means they are current on all building codes.

Spend some additional money when buying a house and get an inspection. It’s worth it. And before you sign a contract with a home builder, make sure you inspect the contract. Some builders forbid you from hiring an inspector and that wording is included in the contract. So if you see it in there, give that builder the boot.

The same idea applies when you’re selling a home. Before you go to market, you should hire an inspector to carefully vet your home. Be sure to fix whatever needs repair, and have the inspector’s report and your receipts available for prospective buyers to examine.

As a seller, you have to psychologically try to get inside the head of a buyer. Even though a buyer might consider a used home, they still want it to be as perfect as a doll house. So let’s say a corner of your roof needs repair and you don’t spend the money to fix it. When their inspector finds it, the buyer is more likely to blow the cost of the potential repair out of proportion and make a lower offer on your house accordingly.

Determine your best mortgage rate

Figuring out if you have the best possible rate when you go for a mortgage or refinance can be a difficult process. The industry has made it particularly hard to comparison shop in this arena. But TransUnion has a new website called TrueCredit.com that aims to level the playing field with a tool called the “Mortgage Simulator.” Visit TrueCredit.com/Mortgage to access this tool directly.

For $10, you can buy a month of service that allows you to get a true indication of the rate you should get on a traditional fifteen- or thirty-year fixed mortgage or refinance. TransUnion takes into account info such as the location of the house, the purchase price, the amount of your down payment, your income, and your credit score.

I have to admit that it’s historically been tough to get the best deal. I’ve had lenders try to cheat me every which way in my real estate dealings. But hopefully this tool can be an equalizer for you.

Two last notes of caution here.

First, you’ll probably want to cancel this service in writing after you’re done with it or the $10 fee will continue to be automatically deducted from your credit card or checking account each month.

Second, you might see a pitch to pay $14.95 for your credit score and report while at TrueCredit.com. Don’t fall for it! Remember that the only site for your free credit report is AnnualCreditReport.com, as I’ve noted elsewhere in this book.

CLARK’S GREATEST HITS
Spend only 90 percent of your approval mortagage amount
There’s a simple rule of thumb I tell people to follow when shopping for a mortgage: See what you qualify for when it comes to a traditional thirty-year fixed rate loan. Then back off and go house shopping at only 90 percent of that dollar amount. So if you qualify for a $200,000 mortgage, for example, don’t look at houses above $180,000.
By doing that, you will help create extra financial breathing room in your life. In the past, people mistakenly thought that stretching to buy a home would create wealth for them.
Historically, however, home values go up only at the rate of inflation plus a little smidge more each year. Yet at the peak of the real estate bubble in 2006, most real estate was overvalued by 50 percent. Something had to give.
In 2011, we’re going through what economists call a correction period: Prices went out of sight, they came crashing down, and now recovery will be gradual. We’ll eventually get back on track with traditional increases in home values when jobs return and the rate of natural household formation soaks up all the excess housing built by speculators across the nation.
The expense of housing is like a rubber band—stretch it too far and it will break. Stay at 90 percent or lower and your wallet will smile.

Buy a vacation home during the off-season

When it comes to buying a second home or a vacation home, it’s best to know the cycles of the market where you want to buy. There are certain times of year that are better to buy than others—and it’s all based on your desired location.

The best times of year are generally the opposite of peak season. For example, try looking between the summer and the fall if you want a vacation home in a mountain state that has winter ski activity. On the other hand, midwinter is the best time to buy in the Great Lakes, the Northeast, or Canada; hardly anyone else will be looking and you might meet up with a desperate seller.

If you’d like to own on a particular lake, ski resort, beach, or mountain, study the rhythms of the local market and know when to strike. Knowing the calendar could save you tens of thousands of dollars. Do not buy during peak season!

Aside from the cyclical nature of hunting for a vacation home, we are right now in the midst of great opportunity because of the housing slump and the Great Recession. When push came to shove and the real estate market fell apart over the last four years, people who owned more than one home tended to hold on to their primary home and let their vacation home go into foreclosure.

I’ve personally benefited from a bank-owned foreclosure in a mountain community that I bought in early 2008 for 42 percent below the most recent asking price. Some have said that I’m taking advantage of another’s misfortune. But I’ve never understood that point of view; the home was already in foreclosure when I bought it, it’s not as if I caused it. I was just there to take advantage of the opportunity.

Only in the last year have people seized the day as I’ve suggested. I read a recent story in The Wall Street Journal about how second-home communities are seeing sales rise by 40 to 50 percent. I guess banks are now seeing reality and selling the foreclosed properties on their books at great prices.

The big overhang of supply in vacation homes is going to whittle down over time, though it’s not as if all the opportunity will end tomorrow. I think we will still be in a sweet spot into 2012 to get a great deal on the second home of your dreams.

ONCE YOU’RE IN THE HOME

Reduce mortgage interest by switching to a fifteen-year loan

One of the most frequent calls I get on my show is about how and when to refinance your mortgage. There’s been great interest in refinancing, as mortgage rates hit historic lows and stayed in very favorable territory during 2009, 2010, and 2011. People used to go by the general rule that if you can shave at least half a point off your current interest rate, it is a good idea to refinance. But that formula has changed slightly over the years.

The easiest way to decide whether to refinance is to measure the cost of refinancing against the potential savings. If you can lower your mortgage rate through a no-cost refinance, that’s easy. With no costs to refinance, you’ll start saving right away. But the rate you pay will usually be higher than the market average.

If you go the other end of the route and decide to pay closing costs on your new loan, compare your closing costs to the following: the monthly savings from your new mortgage multiplied by the number of months you expect to stay in the house. If it takes longer than thirty months for your savings to top your closing costs, you might not want to refinance.

One of my favorite kinds of refinancing is going from a thirty-year loan to a fifteen-year loan. If you have twenty-three years left on a thirty-year mortgage and you refinance into a new thirty-year loan, you’ll extend the time you’re in debt. If you choose a fifteen-year loan instead, you’ll cut your interest rate even more and pay off the mortgage sooner. You’ll have to pay more per month, though. If you can’t afford the payments on a fifteen-year loan, consider a twenty-year loan instead.

Because house prices fell nationwide during the Great Recession, check the value of your house before you refinance. Lenders often will loan no more than 80 percent of what you owe on your mortgage. If an appraisal comes in too low, 80 percent of the appraised value might not be enough to pay off your existing mortgage. Unless you have enough cash available to make up the difference, you might not be able to refinance.

That’s why more and more people have started doing cash-in refinances, where they bring their own money to the table at closing. This can be a great way to take advantage of low mortgage interest rates when you might otherwise be locked out because your house won’t appraise out.

In fact, with today’s very low interest rates, we’re in a situation right now where I think you should do a cash-in refinance even if you have to borrow against your 401(k)—gasp!—to pay down that mortgage and get a new, ultra-low interest rate. It’s unknown how much longer we have in this window of very low mortgage rates. So if you plan to stay in your house and can scrounge up the money, do it!

From listening to Clark, I learned that I could refinance my mortgage and possibly get a lower interest rate with a shorter term. I went from 23 years left at 5.5 percent to a 15-year mortgage at 3.875 percent. My house will be paid off just as my oldest child enters his senior year of high school and I’ll save tens of thousands of dollars in interest! My payment is slightly higher now, but using some of Clark’s other tips I’ve been able to offset this. For example, by switching my Internet provider I’m saving $10 a month and it’s faster than my previous Internet service.
Michelle P., OH

Avoid accelerated mortgages and set up your own plan

Over the years, I’ve received a lot of questions about accelerated mortgage offers. People wonder if these offers are a new kind of scam. “Scam” is probably too strong a word, but I do think this is a serious rip-off and I want to show you how to avoid it!

First, let’s take a look at the offer. It arrives as a friendly letter inviting you to pay off your mortgage years earlier than you normally would. The deal is that you have to pay your bank or an appointed marketing company $200 to $400 to set you up on a biweekly payment plan. It also stipulates that you’ll be billed another couple of bucks each time you make a payment. Or you may be told there are no start-up costs, but every biweekly payment will be assessed a fee.

In essence, this plan will have you paying half your monthly mortgage payment every two weeks. That’s equivalent to 26 half-payments in a year. At the end of year, the marketing company or bank makes one additional payment toward your mortgage. So the end result is that you make thirteen months of mortgage payments in a twelve-month period. But because you probably paid an initial fee to set this up, the bank held some of your money all year long and got rich off the interest.

Here’s what you should do instead. Keep making monthly mortgage payments and add one-twelfth extra in the additional principal box on your monthly coupon. So if your monthly payment is $1,200, pay $1,300 instead. That way you’ll do for free what your bank wants to charge you for and you’ll bring your principal down sooner.

See if you’re owed a HUD refund on an FHA mortgage

The collapse of the private mortgage market that accompanied the bank bailouts and the Great Recession put a heavy burden on the government.

According to figures I’ve seen, the Federal Housing Administration (FHA) accounted for about one in three mortgages written in the United States at the end of last decade. If you’ve ever had an FHA-backed loan in the past, here’s a tip that could potentially be in the “found money” category for you.

Some FHA homeowners are due refunds from mortgage insurance premiums they paid to protect the FHA from the risk of owner default.

In some cases, people who are owed the money will be contacted by third-party companies saying they’ll obtain the refund for a cut of it. Don’t give your money away—get it for free by visiting the U.S. Department of Housing and Urban Development’s website at HUD.gov.

Click on the A–Z Index, go to the R section, and select “Refunds.” You can then search by your last name or FHA case number. Call 800-697-6967 if you need additional assistance.

Appeal your property tax appraisal

A lot of homeowners got a lump of coal from their local government recently. Your home might have gone down in value during the mortgage meltdown and foreclosure crisis of the last few years, but there’s little chance your property tax assessment went down with it. You’re probably still being billed on old numbers.

The appraisals are out of date and they use faulty data from boom-year sales. The net effect is that your local government is ripping you off. There’s simply no other way to say it.

So do you have to just sit there and take it? No way. You can appeal your appraisal. The rules for appeal vary by jurisdiction. In most cases, the appeal process begins informally with your filling out paperwork at the property tax assessor’s office. This is your chance to state what you believe the value of your home to be.

But before you set foot in your local tax assessor’s office, you’ll want to have the “comps” that indicate the prices of recently sold homes in your neighborhood. Search out comps on the Internet or consult a local real estate agent for help pulling these numbers.

Comps should be a real apples-to-apples kind of thing, so if you have a three-bedroom, two-bath home, you’ll want the comps for neighborhood properties of the same or similar layout and square footage and property acreage. You’ll want to get your hands on two to five recent comps (the more current, the better) to get a true picture of your home’s current value.

If you can get comps for foreclosures in your neighborhood, all the better. They’re likely to have sold for very little so that’s like having extra ammunition in your arsenal. These are the kinds of numbers that will be the smoking gun to help you get a rollback of your outdated assessment.

If the tax assessor ultimately turns up his or her nose at the value you’re telling them, you might be able to appeal their decision through a more formal process where you appear before a board of your fellow taxpayers.

Whatever the protocol in your town, there are a few standard pieces of advice I can share. Never gripe about the government at any point during the process. Nobody wants to hear about how you think your hard-earned tax dollars are being poorly spent. Just present the facts about recent sale prices of homes similar to yours.

If you do have to go before a board of your fellow taxpayers, I suggest dressing business casual. The idea is to dress nicely but not too well, and people will respond to your appearance on a subconscious level.

Monitor your home mortgage for fraud

Is your house in danger of being stolen right out from under your nose? A new kind of mortgage fraud known as “house theft” or “house stealing” involves criminals assuming your identity and then cashing out the value of your home. But there is a way to protect yourself.

A recent report from the FBI finds that there was a 36 percent increase in mortgage frauds of all types toward the end of the last decade. Nearly 64,000 incidents of this crime were reported in 2008, according to The New York Times.

The actual method by which crooks commit house theft is downright scary, as a story in The Modesto Bee attests.

“Con artists target a property, then assume the identity of the owner by creating fake identification documents. They use real estate forms sold by office supply stores, then forge signatures and file new property deeds with government authorities. That fraud transfers the property’s ownership, then the home can be sold or refinanced without the real owner knowing.”

So what can you do to protect yourself? A new website called ePropertyWatch.com has a solution. This free service will alert you if there’s any change to public documents related to your home. It also offers regular e-mail updates about your home’s value, foreclosure activity in your neighborhood, and more. As with most free things on the Web, ePropertyWatch.com is an ad-supported service.

Thoroughly investigate a reverse mortgage before doing it

If you know a senior who is “house rich, cash poor” or if that describes you, you might want to consider a reverse mortgage. With a reverse mortgage, the bank pays you each month and gets the equity in your home over time.

Reverse mortgages are done by people who own their homes free and clear (or close to it) and need money to live on each month. Traditionally, this means elderly homeowners who aren’t getting enough from Social Security to meet their monthly bills.

But there are a few dangers here. First, there’s usually no inheritance to leave behind for family members when someone does a reverse mortgage. It all goes to the bank. Second, the fees on reverse mortgages have historically been way too high. While you might pay fees of up to 1.5 percent on a typical refinance, a reverse mortgage in the past could easily come with fees of up to 10 percent.

As awareness grew of those exorbitant fees, seniors effectively went on a buyer’s strike and stopped doing reverse mortgages. That’s now forced the banks to lower their fees.

Bank of America, Wells Fargo, MetLife Bank, and Financial Freedom have all waived origination fees and other charges on certain reverse mortgages sold as part of the Federal Housing Administration’s Home Equity Conversion program, according to The New York Times. So if you’re a candidate for a reverse mortgage and the fees were prohibitive before, you might consider reshopping one now.

But one last word of warning: Despite the new lower fees, I don’t automatically recommend a reverse mortgage for anyone. You’ve got to do your own research to see if it makes sense for you and your situation. Remember, even though the FHA has reduced the fees, many lenders can and will still charge their own fees—and those can be outrageous. So you have to comparison shop, even under the new FHA program.

Reverse.org is my “go-to” website for reverse mortgage info. It’s a free service of the National Center for Home Equity Conversion, an independent nonprofit organization. You should also thoroughly review the lengthy reverse mortgage guide put out by AARP before making any decision.

Never sign a long-term contract with an alarm monitoring company

The burglar alarm industry is one that has a lot of honest companies, but there are also scam artists out there that you’ve got to look out for.

Nothing makes you feel more invaded than coming home to a break-in. Burglar alarm salespeople often read local police reports and might show up with an emotional sales pitch seeking to capitalize on your fear and anxiety after break-ins have taken place in your neighborhood.

Of course, it’s better to search for an alarm-monitoring company before you need it. I recommend visiting user-generated review sites like Yelp.com and Kudzu.com to find a service that is positively reviewed by multiple people. Or you could drive around your neighborhood and look for signs in front yards of no-name alarm companies. Those kinds of companies are often the ones with the great deals. Finally, you can always try a simple Internet search to find a company, entering the name of your town plus a search term like “alarm no contract.”

As you can tell, I have a bias against contract alarm companies. So when you find a company you’re thinking about going with, the first question you should always ask is whether the company requires a contract. If it does, it’s not the company for you; you never want to sign a long-term contract. If you did, you would open yourself to the danger of hidden rollover provisions.

With rollover provisions, you must contact the company in a very specific way (sometimes even on a certain day) to break your contract without being penalized. If you fail to jump through the hoops laid out in the mice-type of your contract, you’re automatically renewed for high-rate monthly monitoring for a period of twelve, twenty-four, or thirty-six months.

Your second question should be about their monthly monitoring fees. You want something in the mid-to-high teens—no more than $20 at the most.

Then you have equipment installation costs. You can usually get a preliminary quote over the phone by counting the number of doors and windows you have to protect. Consider adding an internal motion sensor as well. Initial equipment installation costs can be anywhere from $600 to $800 for a typical home. Beware of supposedly “free” equipment because the costs will be built into your monthly monitoring cost.

Finally, make sure your monitoring station is UL approved and also offers integrated smoke and fire detection.

Clark mentioned in response to a listener some time ago that security monitoring should not cost more than in the high teens to low twenties per month. ADT had been charging me over $30 month for this. They just sent me a letter raising my rate from $34 to $37 per month. I called and told them that I was seeing ads for ADT on TV with monitoring for “about $1 per day” and that it looked to me like they were taking advantage of customers like me who have been with them almost 10 years. The rep’s immediate response: “I’m lowering your rate to $24.99 per month.” It’s not quite as low as I would like, but it is a LOT better than an increase. Thanks to Clark’s benchmark, I’m saving over $120 per year.
Alan J., VA

Remove jewelry from your home during an open house

An oldie but baddie scam has become active again in the home-selling market. During an open house, criminals work together, with one distracting your real estate agent while the other rifles through drawers and cabinets around the house looking for jewelry. The criminals might arrive separately within minutes of each other or they might come as a couple.

The Washington Post reported that in one instance at least $43,000 worth of jewelry was stolen during five open houses in Fairfax County, Virginia.

My rule is to avoid the problem in the first place. When you list your home, be sure you also rent a safety deposit box off the premises where you can stash away jewelry or other valuables. Any important financial papers can be stored in a locked cabinet at your home.

Or as one of my listeners suggested, you could also try posting a sign out front that states, “All valuables have been removed from this property.” That should hopefully make any criminal opportunists think twice before swooping in for what might look like an easy job.

Of course, most people who go to an open house will be honest potential buyers. But you still have to protect yourself from the small number of people who aren’t. Prevention is not only the best cure here, but the only one.

Try virtual picketing to resolve issues with a home builder

How should you deal with a builder who doesn’t honor the terms of your warranty after you close on your home? For the past fifteen years, I have been advising people to picket the builder at their developments. You used to have to call your jurisdiction to find out how to go about picketing and make sure that you never said slanderous things about the builder’s character.

But today instead of physically picketing, people take their ire online. BusinessWeek did a report on homeowners who have set up gripe websites. Some builders have fought back by trying to put clauses in their contracts that aim to silence you if you do business with them. That’s an infringement of free speech. A builder who is afraid of the truth is not someone you want as a business partner.

I know that building a house is difficult and involves a lot of micro-management with all the day laborers and subcontractors. That why I advise people not to close on their home until all the contractual items are complete. If you’re getting pressure to close anyway, consider hiring a lawyer to withhold money in escrow to cover any outstanding issues. This practice, known as “retainage,” is set at a standard 10 percent in the commercial market.

Once a builder completes your house, you’re yesterday’s news. The only reason they have to care about you is their reputation. So consider taking your battle online if need be.

RENTING

Shop for an apartment sixty days before your lease expires

If you’re among the roughly one in three Americans who rents instead of owning a home, there’s good news for you in the marketplace. Toward the end of the last decade, the number of apartment vacancies hit a thirty-year high. It will likely be a while before things get back to normal. This creates great opportunity for tenants if they choose to accept the shopping challenge!

Very often, when your lease expires, you might get a renewal bonus like a gift card to entice you to sign on again. But take a cue from Jerry Maguire and say, “Show me the money!” You can get real savings by being willing to walk.

I want you to start searching for a new apartment sixty to ninety days before your lease is up, unless you’re required to give more notice. Do a thorough search of traditional apartments and also check out condos, which might be newer and might rent for less per square foot than an apartment.

Take the info you’ve collected and lay it out for your current landlord or property manager. By showing him or her what’s available in the marketplace, you have some ammunition to ask for a better deal on rent when it’s time to sign another lease.

You might be surprised at the offer your landlord comes back with to keep you. You might get a free month of rent, a waiver of the security deposit, or a kick-out clause in the event that you’re laid-off.

But you get that power only if you’re willing to walk out of your current situation at renewal time. Landlords have to spend big bucks to find new tenants or to let an apartment sit vacant, so you hold the power.

If you’d rather stay put where you are, you should still search for apartments and then show your current landlord what you’ve found. It never hurts to ask if he or she will compete against the other cheaper rents out there.

Finally, when you vacate an apartment, be sure to leave it spotless and make any necessary repairs. Hire a cleaner to get it in order if you must. Just be certain to take pictures or video of the condition so the landlord has no reason to withhold your security deposit.

Bargain in the “shadow market” for vacant condos

The data on rental apartments shows that the number of vacancies is the highest it’s been in a generation. You’d have to go back to the mid-1980s to find a similar glut of empty rentals in the marketplace.

This is actually the complete opposite of what economists expected. Technically, the rash of foreclosures that resulted from job loss in the Great Recession should have created more renters. But there were several factors running interference here.

First, a large “shadow market” of condo owners who bought properties as speculators and now can’t sell have been forced into becoming involuntary landlords. That creates competition for the traditional apartment complexes.

Second, many people in their twenties are getting out of school and going straight back home to live with their families because of the job crunch, or else they’re boomeranging back home after living on their own once they face a job loss.

You’ll find the greatest hazard and opportunity alike in renting from the shadow market. Involuntary landlords usually just need the money and don’t know or care much about maintaining a property. You might not get a prompt response on maintenance issues. But involuntary landlords are also likely to offer you cheaper rent than a traditional rental complex.

Other dangers of the shadow market include possible risk of landlord foreclosure. In prior times, paying renters could find themselves on the street in as little as five days after their landlord was served with a foreclosure notice. Fortunately, there’s a new federal housing law on the books that provides protection for tenants who are current on their rent even when their landlords are facing foreclosure.

The law permits paying tenants to stay for the remainder of the lease, plus an additional ninety days. If you’re renting without a lease, you’ll get a ninety-day notice of eviction.

The foreclosing bank essentially becomes your landlord and tells you where to mail your check.

Crooks might pose as landlords to rent foreclosures

Con artists have been taking advantage of the housing meltdown by acting as bogus landlords and renting foreclosures.

Here’s how this rip-off typically plays out: Criminals will call a locksmith out to a foreclosed property and say they locked themselves out. Once they get in the house, they’ll pay a locksmith for his or her service, and when the locksmith leaves, they’ll call another one to come out to rekey the lock.

When the coast is clear, they’ll put up a “For Lease” sign or list the property on Craigslist. Unsuspecting tenants go to look at the property and find it’s a steal of a deal. And of course the criminal who is masquerading as the landlord is only too happy to take a deposit and hand over the keys.

The unwitting tenants often continue paying rent each month by sending their check to a post office box. Then one day, out of the blue, someone comes around and asks them, “I’m with such-and-such bank and this is a foreclosure. Why are you living here?”

Special thanks to my listener Raymond for letting me know about this scam. Raymond works as a realtor and reports that some crooks are even scraping info from legit multiple listing service (MLS) entries to enhance their Craigslist come-ons.

Here’s what Raymond told us about how this scam affected one of his listings: “I looked up the ad [on] Craigslist, and there was my listing complete with the description from my website and several of the pictures I’d taken. [The criminal] was offering this 2,000-square-foot home in a community that has a swimming pool, park, and tennis courts at $750 per month! Such a home would really rent from $1,250 to $1,500 a month.”

How can you as a would-be renter protect yourself? Have your potential new landlord show you a copy of the deed on the property. If you feel awkward about asking to see the deed, you can also check with the county assessor’s office. They should be able to help you verify that the person presenting himself or herself as the landlord is in fact the true owner on record.

A few more general warnings apply here as well: Don’t ever wire money for a deposit. Be suspicious of post office box addresses as a way to send monthly rent; physical street addresses are much safer. And be sure you have a written and executed lease before occupying any property.

Most of the time, landlords will be on the up and up, but you have to protect yourself in the few cases when they’re not.

Shop around for quotes from movers

The Census Bureau found that only 11 percent of Americans moved in 2008 at the peak of the Great Recession. That’s down from the typical annual average of 20 percent, according to the San Francisco Chronicle.

Why the dearth of people moving? Homeowners simply couldn’t afford to take the loss on selling their homes. Plus, there weren’t that many jobs available to prompt people to move! The effect is that the moving industry was in a depression and those who did want to move had real pricing power.

The ways you can move have changed. You can hire movers to pack up your possessions and then drive them yourself, you can do it all yourself, or you can load up a portable on-demand storage unit and have a company move it. And as always, you can hire a traditional mover to do everything for you from start to finish.

One thing I tell people is that there’s always variable pricing for moving trucks based on the day of the week, the time of the month, and whether you’re moving to or from a particular city. It pays to shop around on the Web or to call around for several quotes.

Begin by checking Moving.org, the official site of the American Moving and Storage Association. That’s the industry’s nonprofit trade association, and they have the ProMover program to help you connect with reputable movers. This new program tries to weed out the rogue operators who might rip you off.

Even when going with a certified ProMover, be sure you get a “binding estimate” in advance specifying the cost of your move. Also, buy replacement value insurance on your possessions separately in case something breaks; the current payout rate was set in the 1930s and never adjusted for inflation. And, finally, videotape your possessions before you start packing so there are no disputes about what you owned if something goes missing.

If you have particularly bulky items to ship—like a boat or heavy machinery—I have another suggestion. Visit UShip.com to let customer-rated movers bid for your moving job.

ENERGY AND APPLIANCES

Set up a repair fund in lieu of a home warranty

When you buy a used home, you’ll get a lot of pitches about home warranties that are supposed to pay for unexpected repairs. Though I’m not a fan of them, sales of home warranties were significantly strong during the Great Recession as people looked for ways to control costs throughout a time of economic uncertainty.

The California Home Service Contract Association, for example, reported that in one recent year, nearly nine out of every ten housing transactions in the state included a warranty.

Most basic home warranties will cover a home’s major operating systems for one year after you purchase the house. That typically means plumbing, electrical and heating systems, hot water heaters, garage door openers, limited pest control, and most built-in appliances.

I know, however, from the calls I get on my show that too many of the outfits pushing home warranties are more interested in selling their policies than in paying for repairs when something breaks. That’s why I’ve long said that the only good time to buy a policy is if you’re selling a used home and you want to give a would-be buyer some extra assurance. Think of it as the cost of doing business in a buyer’s market.

For most consumers, home warranties have so many limitations and exclusions that they’re just not worth the price. In addition to the $300 to $500 for the policy, you must pay more money for each service call. And oftentimes the company claims you are at fault for the damage and won’t pay, or else they’ll replace failing appliances with substandard equipment after they play the waiting game with you.

You’re better off putting $50 each month into a repair fund account and saving for a rainy day on your own.

I purchased a home warranty last year thinking that it would make life easier if anything major happened to my appliances, especially the central heat and air. Clark doesn’t recommend doing this, but the contract stated it could be canceled anytime. In addition, if you canceled in the first month, you were supposed to be able to get your first payment back.
I didn’t use the warranty and decided to cancel the contract, but I never could get through on the phone. Their automated system kept me on hold, saying it would be “more than 15 minutes.” I stayed on the line. Finally, when a person answered, I told them I wanted to cancel and then was put on hold again with the system saying it would be another 15 minutes of holding! They never came back on the phone.
I had to end up canceling by changing my credit card number for fear they would take out the next premium. A few weeks later, I got a letter from an attorney stating that I had a debt for $450, which was the cost of the entire annual contract! I had 30 days to respond or the debt would be enforced. Immediately I responded to the letter, explaining my situation. I sent it back to them certified mail. A few weeks later, I got a return letter stating the charges were dismissed. This saved $450, not to mention my good credit!
Shirley S., GA

Shop at a local scratch-and-dent store for appliance deals

I recently had to shop for a new washer/dryer combo when mine croaked after years of loyal service. So where did I go to shop? A “scratch-and-dent” appliance store, of course.

Scratch-and-dent stores offer new appliances that have been sufficiently scuffed up during shipping to the point where they can’t be sold in a traditional appliance store.

In my case, I had been pricing the same model I wanted at Costco and ultimately paid half the price at the scratch-and-dent—after checking reliability stats in Consumer Reports, of course. If you can beat Costco by that much, you know you have a real deal!

Think about it: Who cares if an appliance has a dent? Especially if you’re going to put it up against a wall and never see it!

How can you find a scratch-and-dent store near you? Try calling local appliance stores and asking if they have a nearby outlet store or warehouse. Sears operates some of the best scratch-and-dent outlets across the country. There’s also a regional chain called Appliance Smart that has locations in Georgia, Minnesota, Ohio, and Texas.

Just be aware that delivery often isn’t included in the price, so you’ll need to arrange for that on your own or through the scratch-and-dent’s own delivery agent at an additional cost.

Buy gently used or new appliances on Craigslist

Gently used or new appliances can be a real deal on Craigslist, as my executive radio producer, Christa DiBiase, has found. Unfortunately, Christa had to replace all the major appliances in her home after floods swept through the Southeast in September 2009.

By diligently searching online every day, she was able to find brand-new stainless-steel double convection ovens that were never installed or used in a home. She bought them from a man who planned to use them in one of his high-end rental properties in metro Atlanta. But he couldn’t install them because the tenants wanted a different finish! So what retails for $2,850 cost Christa a mere $600.

In addition, she picked up a fancy six-burner gas range from an architect who bought it for a client who again opted for a different finish. It was never used and came in its box with warranty. Retail price: $3,200. Christa’s price: around $600! She also snatched up a $3,150 Thermador hood for just $500!

The only hazard here is that people selling appliances on Craigslist could be doing so out of their foreclosed homes. Or worse yet, they might be selling stolen goods. Meet with the sellers and use your own judgment. If you think they’re offering stolen appliances, don’t do business with them.

Buy appliances without relying on Energy Star labeling

For years, I’ve encouraged people to buy Energy Star appliances because of their reputation for energy efficiency. But the blue Energy Star label has apparently been cheapened.

Earlier this decade, The Washington Post found that far too many appliances bore the Energy Star label. Initially the program was designed to recognize only the top 25 percent of products in any given category. How is it then that 84 percent of LCD displays bore the logo, along with 79 percent of all television sets, according to the newspaper?

No word yet if this is a result of outright dishonesty or just bureaucratic bungling. But it’s as if manufacturers are on the honor system when it comes to labeling their appliances.

So how should you be making the best choice when you buy an appliance?

Start by looking for reliability stats by manufacturer in Consumer Reports or elsewhere, and then shop at a scratch-and-dent store. (See “Shop at a Local Scratch-and-Dent Store for Appliance Deals” on page 143.) When you’re at the store, look at the actual cost of energy consumption, which is usually indicated on a yellow-and-white tag either on the front of or inside the appliance. It’s not just the purchase price that matters but the cost of energy or other resources such as water that the appliance will consume over time.

I recently had to buy a new washer. So I wound up willingly paying $180 more for a unit than I would have if I had purchased a similar model that drank tons more water. But I know I’ll be making that $180 up (and more) over the lifetime of the washer.

So beware of paying more for an item that has the Energy Star logo versus another smart buy that might not. However, in some cases, there are federal and state rebates for Energy Star products. Then it might make sense to buy one. Visit EnergySavers.gov/Financial to find appliance rebates in your state.

Use CFLs or LEDs to save on your electric bill

For several years, I’ve been explaining how my beloved compact fluorescent light (CFL) bulbs are really just a transitional technology until we get to light-emitting diodes (LED) for home use.

With CFLs, you get a product that can save you about $30 over the life of the bulb versus a traditional incandescent bulb. A lot of people have poked fun at me for my enthusiasm about CFLs. I think that’s partly because CFLs are more expensive to buy than traditional bulbs. But remember, the cost of a bulb means nothing; it’s all about the cost of electricity to run the bulb.

Another hang-up about CFLs has been the mercury content. Now that Home Depot has begun a nationwide recycling program at all of its stores, I can feel better about recommending CFLs. You don’t even have to buy the bulb at a Home Depot for them to recycle it at the end of its life! Visit HomeDepot.com for more details. A number of smaller retailers have also stepped up with their own CFL recycling programs now too.

But the real savings action is going to come from LEDs. Being the pioneer that I am, I’ve already been toying with LEDs around the house. In fact, one of the first things I did was install an LED by my elliptical machine. Turns out the light is so poor, I can’t even read a newspaper while I work out!

Obviously, LEDs are not ready for prime time—yet. But they promise to deliver great light down the road at a cost to operate that’s even cheaper than CFLs. And they won’t have any of the mercury disposal issues.

Lighting accounts for 20 to 25 percent of the average electric bill, but that will drop like a rock in the future. The most efficient LEDs use only 5 percent of the electricity of a regular bulb and they throw off much less heat.

Bridgelux is one company that makes a $20 LED bulb, which could potentially last an entire lifetime. Of course, the company isn’t counting on many residential buyers at that price. They figure the market will be commercial users and retailers who have massive electric bills. In warmer climates, such users would also be able to reduce their air-conditioning bill because of the decreased heat generated by the bulb.

Get a free online quote for residential solar power

The first time I saw solar energy at work was when I was traveling in the Middle East during the late 1970s. Back then I thought, “What are all those funny-looking things on the buildings?”

While much of the world has embraced alternative forms of energy, we’re still playing catch-up in America. The problem for homeowners has been figuring out how to implement technologies like solar, wind, and geothermal. You can’t exactly just call around for quotes.

That’s where the power of the Internet comes in.

Sungevity.com allows you to enter your street address and get a guaranteed quote on the installation of a home solar energy system. The assessment is done by satellite mapping, so no visit to your home is required. As I write this, the service is available only in certain areas of the country.

A team of contractors recently finished installing solar panels at my home. We plan to use solar energy to heat our water, which will allow us to cut our natural gas marketer loose.

The cost of installing solar in homes has dropped dramatically thanks to Chinese overproduction of panels. And right now, the government is your partner when it comes to installing solar at home. The feds will eat 30 percent of the cost and many states have their own subsidies as well.

I’ve crunched the numbers for my house and determined I won’t get payback on my solar installation for nine years. Normally, that’s not a good return on an investment. But today, with investments earning so little, a nine-year payback is actually decent. After nine years, it’s just pure profit going back into my pocket.

So does solar make sense for your life? Well, it’s not for the financially faint of heart. I’ve had to lay out thousands of bucks up front to do this. It’s often a smarter move for businesses than for residential customers. If you’re doing it for a residential home, it has to be from the heart and not from the head.

Prefab construction is more cost-effective than stick-built

Modular homes may be the wave of the future if Warren Buffett has his way. Our nation’s top-dog investor is pouring his money into the i-house, an ultra-affordable, ultra-energy-efficient home that’s built in pieces in a factory and later assembled onsite.

Tradition holds that most homes in America are stick-built at the worksite rather than being prefabricated. But the current housing crisis means upsetting that tradition.

Modular factory-built homes can be far more interesting architecturally because they’re built with computer-aided design. We’re not talking about single-wide or double-wide mobile homes here; modular homes are championed by high-end architectural publications like Dwell.

And talk about the savings on your monthly energy bill! You can heat and cool the i-house for around $30 each month! Visit ClaytoniHouse.com for more details and a virtual tour. Base pricing for the i-house starts at $74,900 before setup costs and installation fees.

There have been so many attempts to do factory-built modular housing in the past. The now defunct Cardinal Industries tried to do a lot of prefab manufacturing in the eastern United States. However, their look was too “cookie cutter” and the company never took off.

In addition, most people have never gotten away from fears about local zoning. But I’m hoping Buffett’s support might help create a new day in cheap, green housing.

Zeta Communities is one start-up in San Francisco that’s now building zero-energy townhomes. These townhomes use solar energy, among other types of green energy, and also create power that can be sold down the grid. The cost is $250,000, which is actually cheap in the Bay area. Visit ZetaCommunities.com for more info.

I believe zero-energy prefabricated homes are very much a part of our future. It used to be that no one cared about the costs of running a home—they just cared about what the home cost. But that was then and this is now.