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How much remodeling to do & still expect money out of the property when you sell?

by Allison Simson & Joyce Nenninger

Question: We had thought about buying a new home but just cannot find anything in our price range. Our next option is to do some remodeling. We don’t know how much remodeling we can do and still expect to get that money out of the property when we sell. Do you have any information?

 

Answer: Changing demographics and the booming economy are the two main reasons for the current surge in residential remodeling. Baby boomers are finding it difficult to find new homes in some markets, so they are instead investing their money in their existing residence.

Before homeowners indulge themselves on expensive upgrades, though, they should consider several factors.

First, keep local building codes in mind and consult their city planning or building department to find out what kind of changes are allowed and disallowed. Some areas also have architectural committees that approve architectural drawings.

The next step is to assess their investment realistically. They should build within the value of their neighborhood, keeping long-term resale values in mind.

It is important to note that while homes represent a considerable economic investment, most major remodeling projects return no more than 80 cents to every dollar spent. Homeowners should consider the personal enjoyment they would get from upgrading their property, however, as well as the economic return. Whatever the case, homeowners should know that it almost never pays to own the most expensive house in their neighborhood. On the other hand, if the home is comparably smaller, a large remodel can be worthwhile.

 

Basements are probably the best area in a home to consider for those who may want to remodel, or expand, their living quarters. The cost of remodeling existing basements start at about $20 per square foot--far less than what it costs to build an addition or enlarge second-floor space.

Not every basement is prime for conversions, however. Controlling moisture; adding ventilation and light; and finding a way around hanging drain tiles, ductwork, and wiring are all key factors in determining the practicality of conversion.

The first consideration for a basement conversion is flooding. A variety of solutions will address this, depending on severity. Simpler solutions include repairing cracks, clearing the gutter of clogs, and sloping the ground away from the house. If the problem persists, installing or repairing foundation drains is in order. The presence of radon is also a consideration when converting a basement. A simple test can reveal the level of radon in the basement; and, usually, the gas be collected and vented to the outside. Building codes are also important to consider when remodeling. Lowered ceilings, altered staircases, and emergency exits must all be accounted for--advisably before the project takes place. Basement walls can create a problem because of excessive moisture. Contractors have methods to handle this problem, usually a seal-tight wall or a looser one that allows the wall to breathe. Flooring is usually a more tolerant area, as most anything will work.

Lighting can be a problem for sub-level basements. It is important to utilize all existing natural light by removing shrubbery near windows and adding glass doors in place of solid ones. Recessed incandescent lighting is the most practical solution, as it is unobtrusive and generally more flexible than other options. Moreover, adding other amenities can drain existing electrical pads; so upgrading to a 200-amp panel is advisable, albeit more expensive. Issues concerning ventilation are, again, best addressed beforehand with an inspector rather then afterwards, when it may be too late. Fresh air is just as important to boilers, furnaces, and gas-fired water heaters as it is to people. Humidifiers or air exchangers are good solutions to regulate and maintain fresh air. Converting a basement may require some time and planning; but considering the alternatives, it is also the most economic and rewarding.

 

For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]lEstate.com. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com   

Financing Terminology

by Allison Simson & Joyce Nenninger

Question: We are buying our first home and are very confused about the financing terminology. Could you give us some help?

 

Answer: First-time homebuyers might find financing terminology to be very confusing. One of the most important elements of mortgage finance for borrowers to understand is the interest rate, which is the number that is multiplied by the loan balance to calculate the interest payment owed to the lender. Although the rate quoted on a mortgage is an annual rate, it is applied monthly.

With a fixed-rate mortgage, the interest rate is set for the lifetime of the loan. On an adjustable-rate mortgage (ARM), however, the rate is set for an initial period of one month to 10 years, after which it may change. ARM borrowers have some special considerations when shopping for a mortgage. The fully indexed rate for ARMs, equivalent to the sum of the interest rate index used by the ARM and the fixed margin of profit added on by the lender, tells lenders where the rate will go in a stable interest rate environment. Should interest rates suddenly jump, meanwhile, the maximum rate limits how high the ARM percentage can rise. The second component in the price of a mortgage is points. Each of these upfront fees is expressed as one percent of the loan amount. Points are paid in exchange for a discount on the interest rate. Conversely, rebates are points paid by the lender for high-rate loans and then used by the borrower to, perhaps, offset the costs of settlement.

Finally, mortgage borrowers should recognize that origination fees are imposed by lenders to disguise higher rates. For borrowers, points and origination fees are essentially the same--except that points are tax deductible and origination fees are not. "Junk fees" is a term used to describe any of a bevy of other upfront charges, expressed as a dollar amount of the loan, levied by the lender or mortgage broker.

For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com   

Do you know any Internet sites that compares different loan scenarios?

by Allison Simson & Joyce Nenninger

Question: We are shopping for a loan and would like to be able to compare different loan scenarios. We want to establish the true cost of the different loans that are available. Do you know of any site on the Internet where we could do this?

 

Answer: Fannie Mae has introduced the latest version of its true cost calculator, an online tool providing consumers with an easy way to weigh various mortgage options. The release of true cost calculator 2.0 features the ability to create a file and save multiple loan scenarios for comparison purposes without needing to re-key data.

The technology helps consumers calculate the costs of getting a mortgage, including interest rate and points, mortgage insurance premiums, appraisal and title insurance fees, and other settlement charges. The
True Cost Calculator at www.HomePath.com also provides a more precise estimate by factoring in how long the consumer actually plans to keep the loan. The tool provides an analysis using four key measures: the true cost rate, which is the true cost of the mortgage, expressed as an annual percentage; the true cost rate after taking into account the borrower's potential tax savings; the monthly mortgage payments; and the estimated equity the borrower can expect to amass during the anticipated loan term.

 

For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com   

Cash-Outs Trade Money for Equity

by Allison Simson & Joyce Nenninger

Question: We are interested in doing a “cash out” refinance on our home. Are there any risks involved with this type of refinancing?

 

Answer: Cash-outs involve refinancing an existing mortgage and trading in home equity for cash. This option is especially popular when interest rates are down, because it allows homeowners to refinance at lower rates while gaining access to extra cash. Even better, their monthly mortgage payment usually remains the same or even goes down.

The benefits of cashing out include stretching the term of the loan to access more money at a lower rate, the ability to replace high-cost debt, and avoiding the need to cash in taxable investments.

Cashing out does involve some risks--including possibly renewing a mortgage for its full life and incurring a higher total interest cost for financing and reducing home equity. It can be detrimental if housing prices decline; homeowners who have little equity in a declining market could find that they owe more on their property than what it is worth. Also, homeowners must manage their finances carefully, using the cash-out funds to handle expenses and then keeping spending under control. Qualifying for a cash-out is also difficult. Because this type of borrowing eats into equity, it raises the risks to lenders, who, in turn, will want to carefully scrutinize applicants.

An alternative to cash-outs is the home equity line of credit, which allows a consumer to borrow on a revolving basis. Homeowners need only pay interest on the amount borrowed and will not have to reapply and pay service charges to gain access to more money. This option is most appropriate for borrowers whose cash-out will not reduce their mortgage payment and also for homeowners who want an extra source of cash for ongoing projects, rather than for a specific purpose.

 

For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com   

Analyzing square footage

by Allison Simson & Joyce Nenninger

DEAR ALLISON: In December 2007, I took title to a condominium in Silverthorne, CO unit that was listed on the MLS as being 1,017 square feet, according to the public records. Recently, I was going through a real estate handbook that I own, and it suggested that I have a copy of the appraisal in my files. Since I didn't have one, I requested a copy from my bank. I was shocked to find that the bank found the square footage to be 864 square feet, not 1,017.

Before I took title, my real estate agent met the appraiser at the condo unit and said that I didn't have to be there. The day after the appraisal, I called my real estate agent to ask if everything went OK and she said yes.

Did my real estate agent have legal responsibility to point out the discrepancy? And can title insurance help me claim anything financially at this point? Do you have any other suggestions on what I should do?

Answer: There is an old expression that when there are two lawyers, there will be three opinions. In real estate, when you are trying to analyze square footage, you may actually get four or five opinions!

Measuring square footage has become a hotly debated topic to which there is no definitive answer. Although there are industry standards when measuring single-family houses and office and apartment buildings (which are often ignored anyway), to the best of my knowledge there are no such industry standards for measuring condominium and cooperative apartments.

The American National Standards Institute (ANSI) has published a document entitled "Square Footage -- Method for Calculating" (ANSI Z765-2003). However, it applies only to single-family houses. For attached properties (such as townhomes, which we used to call "row houses"), ANSI states that "the finished square footage of each level is the sum of the finished areas on that level measured at floor level to the exterior finished surfaces of the outside wall or from the centerlines between houses, where appropriate."

Note the words "exterior" and "centerlines."

In a condominium unit, however, developer attorneys who prepare the legal documents tell me that they try to get the engineer who is preparing the measurements to follow the unit boundaries as are spelled out in those documents.

In a condominium, there are two important legal records: the declaration and the bylaws.

The former creates the condominium and contains basic concepts, including a definition of units, common elements and limited common elements.

Here's an example of a definition of a unit from a local District of Columbia declaration:

"Each Condominium Unit includes the horizontal space between the Unit side of the exterior walls of the building and the finished walls separating the Unit from corridors, stairs, and, where applicable, to the surface of the finished walls of those interior walls which separate one Unit from another Unit. Each Condominium Unit also includes the vertical space measured from the (topside) surface of the subflooring to the finished (exposed) surface of the ceiling of such Unit."

Note that this refers only to the inside of the unit. In my opinion, that is how condominium square footage should be measured.

However, many developers have opted to go the ANSI route -- namely measuring from the centerline of the walls between the units. If, for example, the outside wall is 12 inches thick, that would add at least half a foot more to the overall area.

One calculates square footage by multiplying a room's length by its width. Thus, a room that is 12 feet by 18 feet will contain 216 square feet. However, if you add the 6 inches to our example, you get a little more than 231 square feet -- but no more usable (livable) space in your unit.

Why do developers want to increase the square footage? There are two reasons:

First, too many potential homebuyers are literally "hung up" on the amount of space they will get; using the "centerline" approach clearly makes the unit more attractive.

Second, adding more space will decrease the cost "per square foot," which is yet another issue of major concern to a number of consumers. In our example, if the unit price is $400,000, 830 square feet equates to $481.93 per square foot, whereas the centerline approach brings this number down to $465.11 a foot ($400,000 ÷ 860).

So to answer your questions: No, title insurance will not assist you. Square footage is not a title issue. As for the real estate agent, if she learned of the discrepancy before you took title and did not tell you about this, she may have breached her duty to you. But, as discussed above, it may very well be that both numbers are correct -- depending on which formula you use. Copyright 2009 Inman News, Benny Kass

 

For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com   

Finding middle ground for home repairs ~ Negotiating fixes means prioritizing

by Allison Simson & Joyce Nenninger

Finding middle ground for home repairs

Negotiating fixes means prioritizing

 

Question:  Allison, we recently found a Buyer for our condo at Keystone and we’re under contract to close the end of the month.  We negotiated the price down further than we wanted, and much lower than the most recent sale at our complex.  The Buyer’s Broker has just presented us with an inspection notice with many items on it – some of which will be costly to repair.  We don’t want to lose the Buyers, but can’t afford to spend any money on the condo. What do you recommend?

Answer: Good question.  Today's home sales are all about negotiation. Negotiating the purchase price is the first step. A second round of negotiations can occur after the buyers complete their inspections. For sellers who negotiated to their rock-bottom price, this can be disappointing and a possible deal-breaker.

According to Dian Hymer with Inman News, buyers who are willing and able to buy in this market need to feel they are getting a good value. Property condition is a big consideration. Correcting defects adds to the cost. If the buyers still want to buy after completing inspections, and the sellers need or want to sell, an attempt should be made to reach an agreement on inspection-related issues.

First, sellers should carefully review the buyers' reports and their request for repairs, price concessions or credits. Keep in mind that there is a certain amount of subjectivity in inspectors' opinions. For example, one roofer might think a roof needs to be replaced. Another may feel that the roof is serviceable with routine maintenance and is not at the end of its life.

HOUSE HUNTING TIPS: Sellers have the right to get another opinion for repairs. A second opinion could result in a lower estimate, or it could be higher. Seller disclosure requirements vary from one state to the next. Even if it's not required, it's a good idea for sellers to give all reports and estimates to the buyers. In California, sellers who concealed reports they didn't like have been successfully sued by buyers.

Sometimes sellers have work done before they put their home on the market. Occasionally, a buyer's inspector finds damage that was to have been repaired but was not. In this case, the sellers should have the original inspector visit the property to make sure the work was completed.

Sellers can get bogged down on principle, particularly if the buyers make an "as is" offer, had reviewed presale inspection reports before making an offer and then asked the seller to repair defects included in those reports. Some sellers feel this is not playing fair.  The buyers may not have intended to make repair requests when they initially negotiated the purchase agreement. But, after researching costs to repair defects, they may find themselves outside their financial comfort zone.

Buyers should focus on health and safety issues when they approach sellers for help repairing defects. Sellers will often take care of these. However, buyers shouldn't expect sellers to pay to upgrade the property or fix cosmetic items.

It's hard for some sellers to repair items they have lived with for years with no adverse consequence. At some point, defects need to be corrected to prevent further damage to the property.

Buyers should prioritize their request for repairs. Then buyers should ask for help with the most pressing issues, unless they already factored the cost into their initial offer price.

Before walking away from a sale due to inspection-related defects, sellers should seriously consider if they will do better price-wise if they put their home back on the market, particularly if prices in the area are declining.

THE CLOSING: Before giving up, buyers should consider how easy or difficult it will be to find another home they like as much.

Dian Hymer is a nationally syndicated real estate columnist and author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

 

For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com   

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Summit Real Estate
The Bright Choice
330 Dillon Ridge Way, Suite 10
Dillon CO 80435
970-468-6800
800-262-8442
Fax: 970-468-2195

Allison Simson, Owner/Broker, is a licensed Colorado Real Estate Broker