The word is out that the home sale market has changed. Interest rates are rising and, in some areas, homes are selling at a slower pace than they were a year ago. So buyers are finally gaining an edge. And this could be a good time to buy before rates rise further.

An increasing number of homeowners are convinced that now is a good time to sell, so the inventory of homes for sale is increasing. Why are more sellers willing to sell? They fear that the change in the market might lead to lower home prices going forward. Does this mean that you should postpone buying to see if they’re right?

No one knows for sure whether home prices will decrease from recent highs, remain relatively unchanged or continue to rise but at a lower pace as interest rates rise. There’s risk if you buy now and there’s risk if you don’t.

If you postpone your purchase and prices rise along with interest rates, you will pay more than you would today. In a flat market, you could also pay more by waiting if interest rates rise thereby decreasing your purchasing power. However, if you buy now and prices fall, you could lose money if you have to sell before the market cycles upwards again.

At the end of the 1990s, a San Francisco Bay Area couple regretted not buying earlier. They postponed a home purchase for a year so that they could save money to make a larger down payment. In the year they waited, home prices increased so much that the additional cash they saved had no effect on their ratio of down payment to purchase price. As fate would have it, they bought when the market peaked. If they’d bought a year earlier, they would have paid less and would have earned appreciation.

They stayed in the home for about seven years, during which time they remodeled to make the house suitable for their growing family. When they outgrew the home, they sold and moved to a more affluent neighborhood with a better school system.

Even though they’d spent money improving their home, they didn’t realize a significant profit when they sold. Home prices declined after they bought and were just starting to recover when they sold.

Would this couple have been better off if they’d continued renting? Not in their estimation. They enjoyed many happy years living in a home of their own. They were freed of the stress of having to find another rental at an inopportune time. They were free to modify their home at will. They also realized tax benefits and built equity by diligently paying down their mortgage. More importantly, they realized significant appreciation almost immediately on their new, more expensive home.

HOUSE HUNTING TIP: Over the long term, home prices in this country have tended to rise. But, they do fluctuate over time. It’s impossible to time the market. Still, you won’t realize any appreciation unless you’re a property owner.

We’re coming out of a period of extreme appreciation. In many areas of the country homeowners who bought two to three years ago and then sold did very well. But, this is not the norm. Your home purchase decision should not be based on the anticipation of continued appreciation at the recent rate. And, in most cases, it’s not a good idea to buy for the short-term.

THE CLOSING: Even though the market has slowed and appears to be heading towards a more sensible, balanced market, you may encounter competition for well-located, well-priced listings. But, where inventories are rising, you can expect to have more selection and more opportunity to negotiate with the seller–either on the price or on concessions for property defects.Dian Hymer

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Wall Street economists are forecasting a 15.3% drop in new-home sales in 2006 and a 5.6% decline in existing-home sales, according to a survey by The Bond Market Association. “The housing sector is expected to cool from its blockbuster pace but still register solid gains in a higher interest rate environment,” the TBMA survey says. Members of TBMA’s economic advisory committee expect new single-family sales to drop from a record 1.3 million this year to 1.1 million in 2006. They see resales declining from a record 7.1 million to 6.7 million next year. On the other hand, the National Association of Realtors is forecasting a 4.8% drop in new-home sales and a 3.7% drop in resales in 2006. “The slowdown amounts to a tapping of the brakes on a hot market,” NAR chief economist David Lereah said. TBMA and NAR forecasts have the 30-year mortgage rate reaching 6.6% in the second half of 2006. However, the NAR projects that gross domestic product will grow by 4.1% in 2006, while the TBMA economists are predicting 3.6% GDP growth.

Most consumers, before they start shopping for an automobile, decide on the brand, model and options they want. They realize that they can’t shop effectively unless they know exactly what they are shopping for.

When they enter the mortgage market, in contrast, where their financial commitment may be 10 times larger, many consumers don’t have a clue as to what they want. They look to the loan provider to guide them through the maze. This dependency is one major reason they often end up with a mortgage that is over-priced and, even worse, does not meet their needs.

Prospective borrowers should ask themselves these eight questions before entering the market:

What type of mortgage should I select?
The major decision is between fixed-rate mortgages (FRMs) and adjustable-rate mortgages (ARMs). ARMs have lower payments in the early years than FRMs but expose borrowers to the risk of higher payments in later years. ARMs with the lowest early-year payments have the greatest risk of future rate and payment increases.
Which mortgage options should I select?
The major options are to waive the obligation to maintain an escrow account for taxes and insurance payments, which will cost you a little; an interest-only payment option, which also costs little; and a prepayment penalty, in exchange for which the lender will usually pay you.
How long of a term should I take?
The term of a mortgage is the period used to calculate the mortgage payment. The longer the term, the lower the mortgage payment but the slower you pay down the balance. Term selection is an issue primarily on FRMs, which are available at terms ranging from 10 years to 40 years. While 15-year and 40-year FRMs exist, most lenders offer only 30-year FRMs.
How many points should I pay?
Points are fees you pay the lender at the time the loan is closed, expressed as a percent of the loan. On a $100,000 loan, two points means a payment of $2,000. The more points you pay, the lower the interest rate. Hence, points should be viewed as an investment on which the return is higher the longer you have the mortgage.
How large a down payment should I make?
The down payment is the difference between the loan amount and the lower of the sale price or appraised value. If you have discretion over how much to put down, the down payment, like points, is best viewed as an investment. Investment in a larger down payment can yield a high return if it flips the loan into a lower mortgage insurance or interest rate category.
If I put less than 20 percent down, what type of mortgage insurance should I select?
Borrowers who put down less than 20 percent are charged for the risk they impose on lenders. However, borrowers often can choose how to pay. One option is to pay a premium to a private mortgage insurance company (PMI) selected by the lender. A second option is to pay the lender a higher interest rate, which is called lender-provided mortgage insurance (LPMI). In this case, the lender purchases insurance from a PMI, though not always. The third option is a “piggyback” arrangement, where the borrower takes out a first mortgage for 80 percent of property value, and a higher-rate second mortgage for the balance of the funds needed.
How long a lock period do I need and when should I lock?
The lock period is the period during which the lender guarantees the rate and points: the longer the lock period, the higher the price. Borrowers must choose when to lock and for how long.
What documentation requirements should I seek?
A lender’s “documentation requirements” stipulate the information about the borrower’s finances that must be provided and how this information will be verified, and then used by the lender. Lenders offer choices ranging from “full documentation” to “no-docs.” Because the risk to the lender rises as documentation requirements become less stringent, the price of the mortgage rises correspondingly. Borrowers may or may not have any leeway, depending on what documentation they can provide,Jack Guttentag

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The single most cost-effective investment you can make to increase the value of your home is to buy a roll or two of plastic trash bags. Stuff them with junk outside the house – from beer cans to raked leaves.

Nothing could be more common-sense than cleaning up the yard and exterior, right?

“You’d be surprised at how many people don’t recognize the importance of doing these kinds of items,” says Steve Berges, a real estate investor in Michigan who buys dilapidated houses, fixes them up and sells them for a profit. His advice: When renovating a house or preparing it for sale, spend money on things a buyer can see.

Any successful investor is adept at spotting hidden value, buying low and selling high. That’s what Berges does when he scouts properties, generally houses 20 to 70 years old. “One of the things that we like when we drive up to a house is what we refer to as high ‘Yikes!’ appeal,” he says. He defines “yikes appeal” as the state of a house in which a normal person would drive up, say, “Yikes!” and keep on driving.

What a ‘Yikes’ house looks like

A house with high “Yikes!” appeal has weeds, a boat parked in the front yard and an old car transmission on the side of the house, nested amid beer cans. A rain gutter hangs down. Overgrown shrubs obscure the front windows, creating a dreary interior. People actually try to sell their homes in such condition, creating opportunities for bargain-hunters.

Working the other side of the equation, Berges has written a book called “101 Cost-Effective Ways to Increase the Value of Your Home.”

The book lists various kinds of exterior and interior improvements (improving the porch, replacing kitchen cabinets) and ranks each project’s “impact value.” A one-star impact value means the project won’t add to the home’s value and might actually lower it; a five-star impact value means the project could potentially add $1.50 or more to the home’s price for every dollar spent.

A lot of money is at stake. Homeowners spent $166 billion on home remodeling in 2001, according to the Harvard Joint Center for Housing Studies. More than three-quarters of that was spent on what the Joint Center calls improvements, with the rest going to maintenance and repairs. Another $48 billion was spent on the remodeling of rental properties. Researchers credit the $214 billion in remodeling for preventing the economy from dropping further into recession in 2001. More money was spent on remodeling than on clothing that year.

Researchers discovered that 6.3% of remodelers spent more than $20,000 on improvements in 2000-2001 and 2.7% spent more than $35,000. Much of that was targeted toward fixing up kitchens and bathrooms.

Protect, improve, appreciate

“Families that spent more on home improvements also realize the greatest rates of price appreciation,” the Harvard study said. “In many regions of the country, homeowners recover as much as 80% to 90% of the cost of home improvements in the form of higher home values. Little wonder, then, that homeowners spent almost $2,300 on average in 2001 to help protect and improve their most important financial asset.”

If you’re getting ready to sell a house, you want to be among the homeowners who recover 80% or more of their investments in the form of a higher price. Berges says the key is thinking like a buyer. And what do buyers do? They drive up to a house and look at it. If they’re not repelled by what they see, they step inside and look around.

Based on that typical experience, Berges formulated the following guidelines:

Spend money on what can be seen vs. what can’t be seen.

Fix up the exterior first, then the interior.

Focus first on what Berges calls the “Yikes!” appeal – clutter, trash and bad smells that drive down a home’s value.

“Visibility adds value,” Berges says. “The improvements that are most visible are the things you need to focus on.”

What you see is what pays off

This means that, if you have $10,000 to spend, and you can either spend it all on a new roof or all on repairing a cracked foundation (but you can’t do both), you should replace the roof because it can be seen. Whatever your budget, put a higher priority on improvements that can be easily seen, because those give you the best bang for the buck.

“People expect the foundation, plumbing and wiring to work,” Berges says. “If they don’t, they detract from value. But fixing them to bring them up to code doesn’t necessarily add value.”

Because an unkempt yard and ugly exterior can cause prospective buyers to drive away without going inside the house, you should work on those first. Clear up clutter. If you want to, hire day laborers to remove that old engine block in the driveway and reattach that rain gutter that fell two years ago and has been lying by the side of the house ever since. Then concentrate on landscaping. Prune hedges, trees and shrubs, especially if they obscure the front of the house. Paint. If the roof is dirty, hire someone to power wash it.

From the curb, “the roof takes up 30% of what you see,” Berges says. “If you have a nice-looking roof, that goes a long way in curb appeal for the house.”

Cut clutter, clean

Maybe you notice that Berges isn’t recommending that you break the bank – just that you spend a little time and money to make the place look better. You should do the same inside the house – reduce clutter and clean everything. If you own a pet, invite a non-pet owner inside the house to sniff around. You might be inured to the smell of your Weimaraner’s urine, but the stench could make a buyer retch.

When Berges buys a house that he intends to fix up quickly and sell, he almost always has the interior repainted wall-to-wall and has the carpets and vinyl flooring replaced. Once, when he and his wife sold their own home, they didn’t replace the carpets and they regretted it.

“We thought that by offering a flooring allowance, a family could move in and select their own flooring,” he writes. But he discovered that buyers don’t want to select their own flooring. He already had bought a house and didn’t want to be stuck with two mortgage payments, so he unloaded the old house quickly, for $10,000 less than he thought it was worth.

Deal with the hassle, keep the profit

“For half that amount we could have replaced all of the flooring and sold the house for its market value,” he ruefully writes. “People don’t want to fool around with painting and replacing carpet and fixing the house up. In the world of fast food and instant gratification, people just want to buy a house and move in.”

Berges’s book is geared toward middle-class homeowners. On the upper end, buyers expect well-kept yards and painted walls, of course, but they often yearn for amenities that middle-class people might not expect. For example, one of the hot trends in the Hamptons on Long Island, says architect Marcia Previti of Gillis Previti Architects, is for two dishwashers in the kitchen. “You might reserve one for glassware and one for pots and big dishes,” she says.

Adding a second dishwasher might be a sound investment in the Hamptons or in Beverly Hills, but it would be a waste of money in Toledo or Peoria. Berges’s final piece of advice is to keep up with the Joneses, but “you don’t want to overimprove.”

Berges lives in a neighborhood of concrete driveways. A neighbor recently spent $28,000 replacing a concrete driveway with brick pavers. In a high-end neighborhood, that would be a cost-effective use of money, but Berges’s neighbor won’t come close to recouping the cost of installing the beautiful driveway.

When you’re trying to decide how to spend remodeling money, Berges recommends seeking the advice of an experienced real estate agent who is familiar with your neighborhood. A licensed appraiser should be able to provide guidance, too.

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When driving down a residential street, have you ever noticed how some houses just seem to have it all together… from paint, to plantings, to proper proportions? That quality, often called curb appeal, can be somewhat elusive. From a real estate standpoint, curb appeal makes a home more valuable and easier to sell. For a homeowner, it inspires pride.

What about your own home? When you look at it objectively, does it immediately elicit a strong first impression? If not, what is it lacking? Following are ten techniques that are guaranteed to perk up your home’s curb appeal.

1)Clean up. This is often one of the least expensive yet most significant things you can do to improve the look of your home. Simply picking up the front yard, putting away unused items such as lawn furniture or other random items, and cleaning up the driveway can make a world of difference.

2) Prune and plant. Cleaning up your landscaping is another relatively easy step. Start by pruning trees and shrubs to enhance their beauty. Then do some planting. Use trees to create majesty and focal points. Tall shrubs can frame and accent interesting features of your house and yard, and conceal unsightly garbage cans, structures, and the like. Low plants and groundcover tie everything together.

Brightly colored flowers in the foreground are a sure way to make a yard look lively.

3) Wash the siding. If you can work safely from the ground or a ladder, this is a job you can do yourself; otherwise, call a handyman or professional pressure washing service. If doing the cleaning yourself, protect stone and brick walls, patios, and plants with plastic sheeting. Sweep off dirt, working from the eaves to the base. Hose off the walls, again working from the top down. If necessary, scrub them with a stiff-bristle brush attached to a long handle, using a mixture of water and non-phosphate detergent. If you decide to use a pressure washer yourself, be very careful to keep the nozzle moving; holding it in one place will remove the paint.

4) Paint. If cleaning doesn’t revive your house’s paint job, painting—though relatively expensive—will give you plenty of bang for your buck, transforming your house with an entirely fresh, new look. If painting the siding is a bit beyond your budget right now, consider painting just the trim.

5) Green-up your lawn. Because a front lawn often carpets much of the front yard, its condition is critical to how a house looks from the street. You can start with regular mowing, raking, edging, weeding, and watering. If necessary, fertilize, de-thatch, or aerate it to get it looking great.

6) Create visual interest. Front-yard gardens, fences, arbors, water features: These are just a few of the elements that can add style, character, and visual interest to your front yard.

7) Punch up the path. The walkway and/or steps that lead to your front door can do more than provide safe passage—they can set the tone for your home’s style, from casual to informal, simple to stately. Brick, concrete, stone, tile—you will not lack for choices of materials or styles.

8) Focus on details. Small things can make a big difference. Your mailbox, house numbers, front light, and potted plants on the porch all present a relatively inexpensive but highly influential opportunity to project style and excellence. Above all, be sure your front door is in great shape. If it isn’t, either refinish or replace it.

9) Light the way. Outdoor lighting is very effective at highlighting your home and yard’s features after daylight hours. Your front yard should have functional path and front porch lighting as well as accent lighting to help create dramatic effects. Home improvement centers carry a variety of low-voltage lighting kits that are made for DIY installs.

10) Garage your cars. Many of us turn our garages into storage rooms and park our cars in the driveway where they clutter the view of the house. If this is the case with your household, maybe it’s time to pare down the paraphernalia to make room for the cars. Don Vandervort

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Everyone loves a cozy fire on a cold night, and fireplaces have always been a popular feature in homes of any size and type. But for a growing number of people, that love does not extend to the mess and physical exertion of hauling, storing and burning wood, and many have turned to natural gas fireplaces as a clean, efficient and highly attractive alternative.

Gas fireplaces – whether freestanding or built-in – are available in a surprising number of sizes, styles and colors. They can heat a single room or an entire house, and offer a variety of options to increase convenience and efficiency. And whether you currently have a freestanding woodstove or a conventional fireplace, in most cases there are gas units available that will replace the old wood-burner and utilize the existing hearth and other masonry work. Also, if you don’t have natural gas available in your home, most of these fireplaces are available as propane-fired units as well.

Selecting a gas fireplace
The first step in the selection process is to visit a couple of showrooms and see what’s on the market. Look at the styles that are available – which range from old-fashioned to ornate to very contemporary – as well as the colors, features and warranties of the various units, and the service and reputation of the dealer. Once you find a size, style and store that you like, a representative from the fireplace store will need to make a site visit to your home to analyze your specific installation.

As with woodstoves, gas fireplaces need to be sized to the area you intend to heat. Many gas units will be advertised as being capable of heating a certain number of square feet of living space, but this is usually based on 8’ or even 7 1/2’ ceiling heights. If you have vaulted ceilings, or if you have a two-story house that is relatively open between the floors, these figures can be misleading.

A more accurate way of sizing the unit is to have the dealer conduct a modified heat-loss calculation for your home. This takes into consideration the actual cubic footage of the area you want to heat, as well as how good or bad the insulation, windows, and other energy features of your home are. Remember also that it may be difficult to utilize a single gas fireplace to heat an entire home – the room where the unit is located will often become uncomfortably warm before a sufficient amount of heat reaches the back areas of the home.

Options and accessories
One aspect of gas fireplaces that many people find extremely attractive are the optional accessories available. These include:

Fans: A small electric motor operates a quiet and powerful circulating fan for better heat distribution. Some units have a fan and switch built right in, others offer the fan as an accessory that can be added at a later time.
Thermostats: A very popular option is thermostatic control, which turns the fireplace on and off at preset temperatures, like a conventional furnace.
Remote control: For the dedicated couch potato, some gas fireplaces are available with an optional remote control. The remote can be used to turn the fireplace on and off, regulate the flame height, and control the activation and speed of the circulating fan.
Logs: With most companies, you can chose the type of “logs” the fireplace has – oak, birch, etc. Gas fireplaces utilize a special type of virtually indestructible ceramic log, and many of the ones in use today are surprisingly realistic in appearance, both when the fireplace is off and when the logs are “burning” – right down to glowing embers in the bottom of the firebox.
Installation
If you’re a very skilled and versatile home handyperson, installation of a gas fireplace may be something you’re comfortable undertaking. But for most people, the combination of skills required makes this something best left to a professional installer. Most fireplace stores either employ their own installers or can arrange for a qualified person to do the work – remember that the installation company must be licensed, bonded and insured.

There are three basic components of a gas fireplace installation – gas piping, installation of the fireplace and flue system and, if your fireplace has a fan and a thermostat, electrical wiring for the installation of a plug, switch and wiring for the thermostat.

Gas pipe size is determined by the size and location of the fireplace, and must be done in approved, threaded black metal gas piping. A shutoff valve is required at the fireplace, and the type, location and accessibility of the valve is specified by the building codes.

The codes and the manufacturer’s specifications also dictate the type and size of the hearth that the fireplace sits on, as well as the clearances between the fireplace and any combustible materials behind and to the sides of the unit. Gas fireplaces also utilize specific types and sizes of flue piping, and in most instances they cannot be vented into an existing masonry chimney or utilize existing woodstove flue pipes.

In virtually all jurisdictions, gas fireplace installations require a mechanical permit for the gas piping, as well as a permit for the fireplace and flue installation. Don’t skip the permit process – in addition to being required by law and helping to ensure that the installation is safe and proper through inspection by an impartial third party, failure to obtain the proper permits may void your homeowner’s insurance policy in the event of a fire. Consult with your dealer and the local building department for complete information before any installation work begins
Paul Bianchina

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