Great News for Homeowners in a 100-yr Floodplain

On March 13, 2014, the US Senate approved a bill to curb flood insurance hikes.

Previously, it was VERY difficult to sell homes in a 100-yr floodplain for full retail value because the Buyer was forced to purchase a new FEMA flood insurance policy at new actuarial rates.

Now under the new law, if the Seller has a subsidized policy with low rates, then the Seller’s policy can be grandfathered to the Buyer.

However, Buyer beware:
If the property you are considering is in a 100-yr floodplain and it does NOT have current low-cost flood insurance, then the new law does not help you because the cost of a new mandatory flood insurance policy is likely to make your total monthly payments too high to stay within the debt-to-income ratios required by your lender.

Read more HERE

Do You Need a Home Warranty?

If you buy a new home, most builders offer a 2-year home warranty automatically. However, when you buy a resale home in Texas, the story changes.

In the case of many foreclosures and “AS-IS” sales, many of the appliances are missing, and some or all of the major systems of the home are in need of replacement or repair. In such cases, a home warranty will NOT be available, and frankly, it does not make any sense to want one.

With a standard retail resale, most Sellers will gladly agree to cover the cost of a 1-year home warranty for the Buyer. These warranties, AKA residential service contracts, cover the major systems in the home with a typical deductible of $60. That means, for example, that if your A/C goes down within 12 months of purchase, then you can usually get things back up and running for just $60 out-of-pocket. The warranty covers the balance.

Obviously, if you can personally repair a problem for less than $60, then you do not want to call your home warranty provider. Their service call charge will be greater than what it costs for you to do the repair on your own. However, if a major component in your home goes down and needs to be replaced, then you will be thrilled to know that $60 out-of-pocket is all you need to spend to replace something like a water heater or a furnace.

There are many home warranty or residential service contract providers that service the State of Texas. The links below will lead to the websites of just a few of them. FYI, my personal favorite is OneGuard.

Home Warranty Companies:

Smoking Could Harm Your Sale

Freedom is important.

If you are a smoker, then you might want to exercise your right to smoke in your own home.

Let me be clear. I will defend your freedom with all my heart. At the same time I will caution you that smoking is not only harmful to  your health. It could also harm the resale value of your home.

Here’s why:

You may not notice it right away, but as you smoke in your home, tobacco smoke is penetrating all of the porous surfaces around you. These porous surfaces include all of your non-glossy interior paint and all of your carpeting. Smoke particles are so small that they will go all the way through your carpet, through your padding, and even down into the porous top surface of your slab. These same particles are also sticky enough to attach themselves to the interior surfaces of all your duct work, your furnace, your plenum and your evaporator.

Why should you care?

If you are a heavy smoker, you may not even notice the effect of these smoke deposits. Therein lies the rub.

Your non-smoking friends, who still have a fully functioning sense of smell, will notice, as soon as they step into your home, that the ambient fragrance around them has changed from “eau de fresh air” into a noxious stench. A few of them won’t know what the new odor means, but most of them will immediately identify it as the smell of stale tobacco smoke.

What’s wrong with that?

Perhaps nothing, until the day comes that you need to sell your home.

Non-smokers with “half a brain” will quickly figure out that they do not want to take on the task of tobacco smoke remediation. The prospect of replacing all the  carpets and repainting all the walls and ceilings is just too much. On top of that, they realize that in order to be thorough they might also need to clean or replace all the ductwork, the furnace, the evaporator and the plenum.

How much will all of that cost? It is hard to say.

A “do it yourselfer” might be able to get it all done for under $5000. However, professional work could easily cost more than $10,000.

To a large degree, the total cost of tobacco smoke remediation will depend on the size of the home and the quality of any replacement components needed.

How will all of this affect the market value of your home?

In my experience of working with Buyers, most non-smokers are sensitive to, and turned off by, the smell of stale tobacco smoke. Many, if not most of them, will choose to keep looking, rather than make an offer on a home that in their words, “smells like smoke.”

If the total pool of likely buyers for your home is limited to smokers, then your listing agent might find it much more difficult to find “the right buyer” for your home. That difficulty could easily translate into a lower sale price than you might otherwise expect.

Here’s the take away:
Seller beware. Smoking could harm your sale.

Are You Upside Down on Your Mortgage?

Perhaps you are wondering about trying to get approval for a short sale. Can you spell “major hassle?”

I have listed successful short sales and I have also listed short sales that went down the toilet. In the process I have learned some basic truths about the short sale process and about mortgage lenders in general.

Here’s the Bottom Line:
You do not want to get on “the bad side” of your lender. The situation can turn ugly in a hurry.

Let’s be clear about your lender’s motivation for doing a short sale. They will only approve a short sale if foreclosure is a real and imminent possibility. That means you need to be seriously behind on your mortgage payments, and you also need to be able to prove that you have a legitimate financial hardship brought on by something like divorce, death of a breadwinner, protracted unemployment, or extended hospitalization.

If you can prove legitimate hardship, then most lenders will consider doing a short sale. However, they are not motivated by sympathy. Rather, they are interested in seeing if a short sale will net them more money than the amount they will be left with after going through the legal expenses and holding costs associated with foreclosure.

Please do not take their attitude personally. It is NOT personal. It is business, plain and simple. The mortgage corporation simply does not care about you or whatever pain or discomfort you may be going through. The company is big and impersonal on purpose. It is ONLY interested in solutions that will minimize their losses and increase their profits.

Here is the Primary Short Sale Deal Breaker:
If you are able to keep up with your mortgage payments, and you want to protect your credit scores, then a short sale is NOT an option for you.

A Couple of Bad Ideas

  • If you are current on your payments and you need to sell quickly, then you can probably do an owner finance with a wrap. However, in my opinion, that is a shady and risky way to go, so I don’t recommend it.
  • Another scenario to avoid is the misguided attempt to rent out your home until the market improves. Imagine how your home will look several years down the road after tenants have trashed the place.

Wise Alternatives to a Short Sale

If you are current on your mortgage payments and you want to protect your credit scores, then there are two respectable paths remaining for getting your house sold even though you are upside down on your mortgage:

  • Sell it at current market value and bring enough cash to the closing table to cover the shortfall so you can walk away clean, or . . .
  • Invest wisely in your home to increase its market value to the point where you can break even on the sale. Given the normal costs of sale, you should work toward an appraisal value that is at least 10% higher than  your mortgage balance.

The main benefit of the investment approach is that you can cover a lot of your shortfall with sweat equity. That is also the downside because it will take a lot of time and effort to do the improvements on your own. The investment approach also carries some risk because appraisal values are based primarily on the recent sale prices of other homes in the surrounding neighborhood. Consequently, appraisers cannot reward you with a higher value for an endless number of upgrades. At some point they will begin to categorize additional upgrades as “over improvements” which do nothing to increase your appraisal value.

Practical “Real Life” Considerations

If you don’t care about your credit scores, then you might be a candidate for strategic default. By “strategic default” I mean that you have the ability to continue making your mortgage payments but you simply choose not to. You forget about loan modifications and short sales, and you just walk away. I don’t recommend this approach, but in reality, the consequences are not much different from the consequences of  a successful short sale.

You need to know that lenders consider a short sale to be pretty much equal to foreclosure. If you ARE upside down on your mortgage, then whether you default or do a short sale, either way, the lender is looking at the prospect of having to book a loss. They will respond initially by going into loss prevention mode. Then if they determine that a loss is inevitable, they are likely to initiate delay tactics to put off having to book the loss. You could be caught in a long slow “meat grinder” of ongoing demands for updated financial documents coupled with repeated threats of foreclosure and eviction.

Can you spell “STRESS?” I’m serious. You might need to go see your Doctor to get a prescription for blood pressure medication.

Here’s the Final Kicker:
Whether you do a short sale, a deed in lieu, or a strategic default, the impact on your credit scores will be roughly the same, and you will not be able to get another mortgage for a period of 3 years after the date of title transfer.

Why Should I Care About Schools?

If you have school age children, then this is a “no brainer.” Yet even if you don’t have children or your kids are all grown, there are still good reasons to care about the schools in your area.

As a homeowner in Texas, a major portion of your annual property tax goes to support the public school district in which your home is located. These are ad valorem taxes, meaning that they are calculated as a percentage of the “tax appraisal value” of your home. The tax rates used to calculate your annual school tax vary significantly by school district. If you want lower property taxes then you should care about your school district’s tax rate.

You also need to know that the strength of the schools in your district will have a direct impact on your property value over time.

If your schools are strong and getting stronger then, property values will go up.

Higher property values mean more tax revenue for the school district. If the money is spent wisely, then the schools continue to get stronger and the upward trend continues.

You might ask, “Which came first, the chicken or the egg?

My answer is, I don’t know and right now it does not matter. You just need to know which direction your schools are trending because that will give you a good indication of what will happen to your property values in the future.

What’s my point? If you care about your future property value, then you should care about the schools in your district.

Texas has a “Robin Hood Tax” that forces wealthy school districts to share revenues with poor school districts. However, this money is often “too little, too late,” and it can take a very long time for the additional funds sent to poor school districts to impact the demographics of a community blighted by large-scale poverty.

Here’s the bottom line:
If you can afford to care about schools, then you need to pay very close attention to school performance and school reputation in your community.

To assist you in making choices that align with your personal goals, the following links will take you to valuable rating information about the schools and school districts in the North Houston Area. The links are listed in alphabetical order for your convenience:

What’s the Big Deal about 100-Year Floodplains?

100 years is a long time but if your home is located in a 100-yr floodplain then it will be very difficult to sell. The reason has to do with the price of flood insurance. Ever since hurricane Katrina, flood insurance premiums have been going up like a rocket. Lenders require Buyers to carry flood insurance on financed properties located in 100-yr floodplains. If you pay cash for one of these homes, then you have the option of going without flood insurance. However, I urge you to think about your exit strategy up front when Buying a home. Keep in mind the fact that most Buyers finance their home purchases. If mandatory flood insurance makes it cost prohibitive for most Buyers to consider your home, how likely is it that you will be able to find anyone willing to give you top dollar for your property?

A word to the wise — if a property has a low list price that seems too good to be true, be sure to check to see if it is located in a 100-yr floodplain.

The links below will take you to the floodplain viewers for Harris County and Montgomery County. You might want to bookmark them for easy access.

What is Your Home Worth?

Many neighborhoods in Houston have seen home prices increase over the past year. Do you know how much your home is worth?

One convenient source of value information is Zillow.com where you can easily enter a property address and instantly see an automated current valuation including historical value over the past several years.

Another source for value information is your county tax appraisal district website. Houston is located in Harris County, and the appraisal district website is HCAD.org

Both of the above sources provide valuable information for homeowners. However, in many instances, their posted market values are significantly “off the mark” for individual properties since they primarily rely on neighborhood statistics in the absence of adequate data concerning the condition of a specific home.

Don’t get me wrong. There is no way to get away from the impact of neighborhood stats. Appraisers are forced to value your home in comparison to the recent sales in your immediate neighborhood whenever such sales data exists. In fact, they will give preference to comparables that closed within the last month, and they will seldom go back more than 90 days to pull comps unless the market is slow and recent comps simply don’t exist.

What’s my point? If you want an accurate  value for your home in the current market, then you have 2 choices that will do a much better job of providing a reliable answer for you than Zillow or HCAD.

Here they are:

  • Hire a professional appraiser for around $300 to $500, or
  • Contact an experienced full-time REALTOR who knows your neighborhood

If you need to sell your home in North Houston or Spring, and you are wondering about your current market value, please call us now:

  • 713-429-1501

Or complete our online CMA Request Form

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