Adding Value to Your Home

There are lots of reasons, and lots of ways, to add value to your home.

Most people remodel to improve a home’s livability. For others, it’s something they do before selling to make their home more marketable. Many improvements not only make the home more attractive to buyers, but will also increase the selling price by all or most of the cost of the improvements.
 
Since most of us will eventually sell our home anyway, it makes sense to make any of those improvements with high paybacks that we would also enjoy now. Spring is the perfect time to make the most cost effective improvement possible for many homes and townhouses. A few small inexpensive shrubs planted in the right places now will grow into a handsome, and much more valuable setting for your home 5-10 years from now. A few hundred dollars and an afternoon with a shovel will provide you some good exercise and can add thousands to your homes eventual resale value.

Kitchen and bath updates usually return a high percentage of their cost on the sale of a home, as long as they aren’t overdone. Decks have gotten increasingly popular in recent years and their contribution to a home’s resale value also reflects that. If you are going to be in your home less than ten years, updates might worth it from a personal enjoyment standpoint even if you don’t recover all of your costs on the home’s sale. However, home decorating designs, components, and tastes change over time. If you plan to be in your home longer than 10 more years, today’s makeover may start to look dated by then. That could reduce the cost recovery from the improvements.
 
There will also be interim savings with many upgrades. If you replace an old inefficient refrigerator with a high efficiency (energy star rated) refrigerator, your savings on electricity will be significant. New insulated windows may be eligible for a federal tax credit, and they’ll also reduce your home energy consumption in the future.

One thing you want to do is to avoid expensive home improvement mistakes. Try to avoid making improvements that add little to your home's value. The National Association of the Remodeling Industry publishes an annual return on investment (ROI) survey of various types of remodeling investments which will be helpful in that regard.
 
Lack of planning is another mistake. You don’t want to change designs or major components in mid project – that can be very expensive. You do want to allow plenty of time to get the job done – it is not uncommon for a job to take twice as long as the contractor originally estimated. There are plenty of good books on the subject, and free tips on the American Homeowners Foundation's website.

You want to make sure the contractor is licensed and insured. Ask to see their state contractor’s license and personal liability and property damage insurance policies (and workers comp insurance policy if they have employees). Use a comprehensive contract including as much detail as possible about the work to be done. You can order a model contract with space to fill in the details for $7.95 on the American Homeowners Foundation's website, or an attorney can draft a customized contract for you.

Interest in Buying Foreclosures is Growing

It may be a good way to save some money, but it can also be a good way to lose your shirt.

With more homes facing foreclosure, some home buyers are beginning to look into buying foreclosed homes or homes at risk of foreclosure. Many home buyers balk at appearing that they may be trying to take advantage of other people's troubles. But those buyers were not the cause of the problem, and if they are willing to pay a little more than some real estate investor for a foreclosed home they are helping bolster home values, which is helpful to all homeowners.
 
A growing number of homes not facing foreclosure are also being sold at real estate auctions. Many of the same steps applying to foreclosure homes also apply to auctioned homes.

Buying a home at a foreclosure sale requires a lot of work and due diligence and is fraught with risks. That is why the foreclosure market has been dominated by real estate investors who specialize in the foreclosure market. You can end up spending a lot of time and money doing your homework, only to learn that at the last minute the auction was canceled because the borrower filed for bankruptcy protection (which temporarily suspends the auction). Even if the sale proceeds, you may not be the successful bidder.

If you are thinking about buying foreclosed property, AHGA recommends that you establish a relationship in advance with a real estate lawyer who has experience with foreclosures in the jurisdiction where the property is located. There are vastly different real estate-related laws and requirements throughout the United States. Books on buying through foreclosures, though many are excellent, don’t cover all the state and local laws. Among them, in some states, is a right for the foreclosed homeowner to reclaim the property several years in the future if they repay their debts. The lawyer can explain to you both the process and potential risks in that jurisdiction and can also hold the earnest money deposit in an escrow account for a home you seek to buy.

If you become very interested in a particular home you should get a title search on the property. A title search shows who owns the property, how many mortgages, lawsuits, unpaid taxes, and liens may be on record that may have priority to payments on the property’s sale. The lender who is foreclosing probably has obtained a title search, and may be willing to share it with you (unless there are other liens, mortgages, pending lawsuits, or other problems). In that case you will probably have to order your own title search.

Some obligations may be wiped out by a foreclosure sale and others may not be. If the forecloser is the first trust holder, then any second trust will be wiped out by a foreclosure. The holder of the second trust will only get paid or partially paid if there’s any money left over after the first trust holder and any senior obligations are paid. While they may still sue the prior owner, after a foreclosure previous mortgage lenders have no claim against the new homeowner or his/her equity in the home.

You should also arrange to have the property professionally inspected. Although homes in good condition frequently go to foreclose, many times a foreclosed home may be in bad condition. It may be a good idea to talk to the homeowners facing foreclosure if you can. There is often the possibility that the current owner could sell the house to you at a price that is below market but enough for them to pay off their mortgage and avoid foreclosure.

You will need to get an appraisal of the value of the property unless you have a very good sense of the local market and are absolutely sure that you won’t be overpaying. You should obtain a preliminary loan qualification letter from a lender to establish your financing limits.
 
You can also often purchase a home at risk of foreclosure before the foreclosure auction. It is important to find out the exact mortgage payout amount, which includes the outstanding loan balance, late fees, legal fees and foreclosure costs. If you feel comfortable paying that amount or more and the homeowner is interested, you will need to make sure that any home sales contract is contingent on your ability to go to closing before the house is foreclosed upon. For that reason you will also need to contact the lender immediately if your offer is accepted and advise them of the pending contract. In the current marketplace that information should give the lender great relief, and they will usually be willing to give you a written notice that they will postpone the foreclosure for a reasonable amount of time to allow you to settle on the property.

If the homeowner owes more than the property is worth, all is not necessarily lost. There are many homeowners today facing those circumstances, and a growing number of lenders are willing to do “short sales”. In a short sale the lender agrees to accept less than they are owed as full satisfaction of the debt. For that to work, the seller must convince the mortgage holder that they have neither sufficient income or other assets to pay their mortgage debts, that the price the buyer (you) is offering is fair under the current market conditions and that the buyer has been approved for a mortgage to buy the property.

Another opportunity for cost-conscious home buyers is the growing number of homes not facing foreclosure that are being sold at real estate auctions. The trend began before the real estate market soured in most areas. When there was a strong sellers market, many home sellers, aware of the frequency of multiple offers, took the logical step of bringing as many potential bidders as possible to the table simultaneously through the vehicle of a real estate auction. Usually the sellers set a reserve price (a price below which there would be no sale), and many home sellers were very happy with the price their home ultimately commanded in these auctions.

As prices have dropped or leveled off, and offers have become fewer and further between, more sellers are resorting to auctions for different reasons. Many have sat on the market for quite a while with no interest, and some sellers are deciding to sell at whatever the home brings at auction. Still, some of those sellers may have set unrealistic auction reserve prices, which is the first thing you’ll need to find out. If there is no reserve price, or if it is sufficiently below market to whet your interest, you should still perform the due diligence steps outlined previously. Because the loans are not distressed, more information about the home is available, and the sellers are not always under as much pressure, selling prices at a non foreclosure real estate auction will generally be higher than at a foreclosure auction. Still, it is usually possible to get a home at a price well under the current market value at such a real estate auction today.

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Health Industry Keeps its Hand in Your Wallet

Efforts to reduce health care costs are struggling, but improvements will be made.

Thanks to the lobbying clout of the pharmaceutical industry, an April 18th U.S. Senate vote on legislation that could help lower prescription drug costs for millions of Medicare beneficiaries was blocked. If passed, the Medicare Fair Prescription Drug Price Act of 2007 would have allowed Medicare to negotiate for lower drug prices.

The legislation had passed in the U.S. House of Representatives and 55 of the 100 Senators voted for it (60 votes were needed for its approval). Despite the support of a majority of the U.S. Senate and nearly 90 percent of voting-age Americans, a minority of Senators blocked this legislation from coming up for a vote on the Senate floor.

The fight in Congress will continue: "Medical costs are one of the most expensive burdens on today’s homeowners.” according to Bruce Hahn, President of the American Homeowners Grassroots Alliance (AHGA). “They continue to rise far faster than inflation, and employers continue to cut back on their benefits due to the costs. Until they are brought under control they will continue to be a threat to the lifestyle and home equity of American homeowners”, he added.

Rising healthcare costs are creating unusual alliances of interest groups. In January the Business Roundtable, Service Employees International Union, and the AARP launched a campaign called Divided We Fail. Widely endorsed in the business, labor, and consumer advocacy committees, supporters hope to force Congress and the 2008 presidential candidates to a serious debate on the growing healthcare crisis that will lead to substantive reforms in the U.S. healthcare system. The alliance is holding town-hall meetings on healthcare issues in key presidential primary states. Despite widespread agreement that something must be done, strong philosophical differences between Democrats and Republicans about the appropriate role of government in providing healthcare coverage will still pose significant challenges to development of broadly supported legislation on healthcare reform.

At the state level, efforts to expand healthcare benefits also continue. The number of people without health insurance now totals almost 50 million Americans.  At least 1.3 million more people under the age of 65 became uninsured between 2004 and 2005.  Today 80 percent of the uninsured are from working families. 

Many states have focused on making health insurance more affordable for small businesses and individuals.  Massachusetts and Vermont both passed universal health care legislation in 2006.  Oklahoma and Arkansas implemented Medicaid waiver programs to cover more of the working uninsured. Universal healthcare efforts in California, Pennsylvania, Texas, Illinois, Missouri, Michigan, Indiana, and Ohio are progressing. In addition governors and state legislatures in many other states are developing various types of programs addressing their state’s unique needs and political realities.

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New Opportunities for Buyers and Sellers

A combination of new technology tools and a glut of real estate agents have created opportunities for home buyers and sellers to save money in real estate transactions.

Buyers are in high demand in today’s marketplace. As a result Internet-based real estate brokers are offering to rebate portions of their real estate commissions, in some cases up to 2% of the homes selling price, back to home buyers. There are several catches. You’ll have to use the real estate agent they refer you to and that agent’s assistance may be limited to helping you put together your offer and present it to the seller. The agent may or may not be very knowledgeable, but this can be a great deal for a home buyer if they don’t need additional real estate services support.

Also, an experienced exclusive buyers agent who you’ve selected on your own may be willing to rebate part of the sales commission, especially if you are buying a higher end home, are financially qualified, and found the listing yourself (not an unlikely scenario these days, as most buyers now start their home search online). Just keep in mind that some states prohibit brokers from offering rebates, thanks to lobbying by state real estate associations intent on preserving their full commissions. The Justice Department has taken legal action against such regulations, alleging they restrict competition among brokers. The 10 states that currently ban rebates are Alabama, Alaska, Kansas, Louisiana, Mississippi, Missouri, New Jersey, North Dakota, Oklahoma and Oregon.

For home sellers, real estate commissions from traditional brokers have dropped slightly, and there’s a plethora of technology applications to help sell your home as well. Average commissions have dropped from just under 6% to just above 5% over the last decade. The rapid escalation of home values during the first half of this decade has meant that the actual selling cost of a home is higher today than a decade ago, but at least most smart home sellers no longer agree to pay the “standard” 6% commission most traditional brokers still seek. Considering that full service real estate commission rates are less than 2% of the selling price in many other countries, further drops in U.S. real estate commission rates are likely.

The glut of real estate agents is also helping to drive commission rates down. Now that the market has slowed down many of them are desperate for clients. There were 1.36 million members of the National Association of Realtors in 2006, versus 767,000 in 2000. In many states Internet based listing brokers will put your home in the multiple listing service (MLS) – which in turn distributes it to numerous real estate sites on the Internet, for a few hundred dollars.

A recent market entrant - Iggys House – now offers free MLS listings. Iggy’s House hopes to profit when clients using the free service migrate to its other site, BuySide Realty, when they buy their next home. BuySide Realty rebates 75 percent of its commissions back to buyers at closing. Another growing player – though it doesn’t offer MLS listings - is Craigs List. Their free listings are widely disseminated in their geographic area and are increasingly use by traditional real estate agents. EBay, Yahoo, and Zillow also have a large cache of listings, and advertising homes on eBay or Yahoo is relatively inexpensive. Zillow also has national MLS listings, a sales price estimator (that’s unfortunately inaccurate in some areas), and allows home sellers to post selling prices.

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Congress Considering Retirement Savings Incentives

Legislation would make it easier to save for retirement.

Congress is considering ways to make it easier to save for retirement. That’s welcome news for most homeowners, who have most of their savings tied up in home equity. Many corporations have cut back on pensions or contributions to 401k programs substantially, and many offer neither. Anything that will help homeowners save above and beyond the amount of their home equity in this era of stagnating home values will truly be welcome.

The Retirement Security for Life Act would provide a strong tax incentive to convert a portion of their savings or assets into a steady “paycheck” for life. Specifically, the bill would provide a 50 percent tax exclusion on the annual income from a life annuity, up to $20,000. For example, a homeowner in the 25 percent tax bracket who excluded this amount from income would save $5,000 in taxes.

Life annuities are a critical component in retirement policy because they are the only savings vehicles besides Social Security and pensions that provide a guaranteed, predictable stream of income for life, regardless of the initial investment—in essence, a “paycheck” for life. Moreover, life annuities offer retirement security for those Americans who lack access to retirement benefits through their employers.

A recent survey showed 68 percent of older American voters (aged 50-70) from both parties support proposals providing a tax incentive for life annuities. The same poll showed Americans are greatly concerned about managing their savings in retirement, a problem that annuities directly address. The Senate legislation S. 1010 will be introduced in the House in the next few weeks.

What you can do: Click this link to the legislative lookup on the AHGA website and look up your U.S. Representative. Ask him or her to cosponsor the House version of the Retirement Security for Life Act when it is introduced and vote for it as well.



Representative Philip English, a member of the Congressional Savings Caucus (right), discusses savings incentive legislation with AHGA President Bruce Hahn on May 1

Other measures to encourage and facilitate savings are pending, and more will be offered. Representative Phil English (R, PA-3), a Congressional Savings and Ownership Caucus Cochairman and member of the House Ways and Means Committee, is expected to introduce an "Automatic IRA" bill to encourage more savings for retirement in the coming weeks. Mr. English has voted for numerous other AHGA-supported measures that benefit homeowners, including the tax deduction for mortgage insurance payments passed last December and tax credits for home energy efficiency improvements.


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