The Basics of Homeowners Associations

The Basics of Homeowners Associations

If you live in a newer suburban community or planned unit development—like some 63 million Americans, according to the Community Associations Institute—you are probably a member of homeowners associations, or HOAs.

It’s also a good bet you haven’t given your HOA much thought until you have a problem. Since HOAs make and enforce the community rules, it’s smart to understand what you can do if you can’t or don’t want to follow them.

HOA Facts

Homeowners associations, volunteer groups of neighbors who manage common areas and community property, create their own own covenants, conditions, and restrictions (CC&Rs). These CC&Rs cover:

§  Resident behavior (no glass containers around the pool)

§  Architecture (no fences higher than 8 feet)

§  Common responsibilities (fee schedules and fines for non-compliance)

Is there value to living in an HOA? Depends on how you define “value”. A 2005 study that appeared in the Cato Institute’s “Regulation” magazine compared a group of Washington, D.C., area HOA properties with similar homes without community benefits—a total of about 12,000 homes. The HOA house values were found to be 5.4% higher. With the median home price around $190,000, that’s about $10,000.

Of course, that means you’d pay more for the HOA home than the non-HOA home. And you’d pay dues, which average $396, according to the Census Bureau. The real value is your HOA property will be well-maintained and the rules for maintenance enforced.

When You Don’t Like the Rules 

Some boards can impose what some homeowners believe are invasive, silly or elitist rules. In 2014, a Myrtle Beach, SC, association decided homeowners could have only two pets. A couple who’d had three dogs for the past 14 years were threatened with a $100-a-day fine unless they got rid of one of their dogs.

And some years back, news outlets reported a story about a homeowner in an upscale gated community in Frisco, TX, who was threatened with fines for parking his new Ford F-150 series truck in his driveway overnight. The board made exceptions for several luxury brands, but his mid-range truck was ruled “not classy enough.”

Even if you disagree with the rules, keep paying your dues. HOAs have broad legal powers to collect fines and fees and regulate activities. If you don’t respond to letters from the board, property manager, or a collection agency, the HOA can and will turn to small claims court or file a lien against your property.

You can handle some issues with a phone call. For example, adding recycling to the garbage collection route is a budget, not a rules, issue. Call the board member who oversees trash collection to find out if there’s leeway in the budget. If you want to do something that’s against the rules—like flying the American flag in your yard—start by:

§  Making a written request for variance, using the appropriate HOA form in your CC&R documents. A variance gives you permission to be the exception to the rule. Submit your request to the board and property management company.

§  Seeking a compromise: That you’d like to fly the American flag, but only on national holidays.

Don’t Expect a Quick Solution

Some HOA boards meet as little as twice a year. If the board decides the issue is worth pursuing, it may require a community vote. If it passes a majority, the board will adopt it. Board members also may consult the HOA attorney to see if there’s a legal liability if they rule against you.

If you don’t get a timely response, request a hearing and resubmit your request for variance with as much support for your cause as possible.

If the board rules against you without a community vote, you can appeal the ruling with a petition signed by a majority of other homeowners.

Fine Reality

But if you fly your flag without permission, expect to get fined. Fines can range from a nominal $25 to a painful $100 or more depending on the issue. Your CC&Rs will indicate the fine schedule—per day, per incident, etc. Interest for nonpayment can accrue, and the HOA can sue you in small claims court.

If you feel the ruling or the fines are unjust, the last resort is to hire an attorney and sue the HOA, as a flag-flying couple did in 1999. They battled their HOA in court for nine years before the case was settled in their favor.

Become the Rule Maker 

If you don’t like the rules, the best way to change them is to become part of the process.

1. Know your CC&Rs, annual budget, and employee contracts. Do you see areas where expenses can be cut? Are service providers doing their jobs?

2. Volunteer for a committee or task. If the board needs to enforce parking rules, for instance, you can volunteer to gather license plate numbers of residents’ vehicles. In addition, put your professional expertise to work: Assist the board with data entry, accounting or website design.

3. Stand for election to the board. When a position becomes open, the board notifies the members, and you can put your name forward. New board members are elected at the annual meeting by member majority vote. Many boards are three to nine members large, with terms of one to two years.

Involvement Drawbacks

As a board member, be prepared to spend two to four hours a month:

§  Reviewing property management reports

§  Monitoring budgets

§  Talking to other board members and residents

Most boards meet quarterly; small boards only meet twice a year for a couple of hours.

Accept that you might become less popular if homeowners don’t like your decisions. In the worst case, you could be sued, along with the rest of the association.

Involvement Benefits

But there are rewards. You’ll feel more in control of your community’s fate. You may find that some rules you didn’t support have merit after all. But most of all, you’ll know you’re doing all you can to protect your quality of life and your home’s value.

How Long Does It Take to Buy a Home?

How Long Does It Take to Buy a Home?

Consumers considering a home purchase often want to get a handle on how long the process takes.

The problem is that it’s a surprisingly subjective and multilayered question. Answers tend to focus on the typical time it takes to close a home loan once you’re under contract, which is usually 30 to 45 days.

That’s an accurate response, but it’s a vantage point that leaves little room between the starting and finish lines. The home-buying journey— from financial preparation and finding the right home to getting under contract and through closing—tends to take a lot longer.

The reality is there is no stock answer, mostly because everyone’s journey is different. Here is a closer look at some stages and steps that can shape your home-buying timeline.

Building Credit & Savings

Signing a purchase agreement to buy a home is a key step, but it doesn’t mean much if you don’t have the credit and assets necessary to secure a mortgage.

You might need to spend time burnishing your credit profile or stockpiling savings in order to qualify for a home loan. Credit-score and down payment requirements can vary depending on the lender and the loan type. (Checking your credit scores before you begin your home search can help you determine if you need more time to build your credit. There are various services that allow you to check your credit scores for free, including Credit.com.)

Borrowers looking at a $300,000 home would need at least $15,000 in cash for a minimum down payment on conventional financing (5%) and at least $10,500 for FHA financing (3.5%).

The average conventional borrower in April had a 755 credit score, while the average FHA borrower had a score of 685, according to mortgage software company Ellie Mae.

Paying down debt, correcting mistakes on your credit report and other steps can help boost your score, rapidly in some cases. But some blemishes can take longer to clear up than others.

How long it takes to build that down payment nest egg depends on the borrower and their budget. Scraping together enough cash to simply meet those minimum requirements can take considerable time, especially for first-time buyers.

Finding the Right Home

Last year, homebuyers typically looked at 10 homes over 12 weeks before getting under contract, according to the National Association of Realtors.

But there’s no game clock on your home search. You can tour 50 homes over 50 weeks. You can buy the first showing.

It’s obviously the most personal part of the process, but it’s also a time when perfect can truly be the enemy of good. First-time buyers especially have to learn to balance wants and needs with the realities of their housing market and what they can afford.

That’s not always an easy—or quick—lesson to learn.

Loan Processing

For mortgage lenders, the home-buying clock starts once they get a copy of your purchase agreement. From there, work starts on getting the property appraised and all of your financial documentation in order for an underwriter to review.

Like credit and underwriting requirements, appraisal time frames can vary depending on the loan type. For example, most appraisals on VA loans are back within 10 days, but it might take longer in more remote parts of the country.

That 30- to 45-day window from contract to close is a good ballpark for most purchase loans, unless you are trying to buy a short sale (think more like 90 to 120 days). But understand it’s not uncommon for underwriters to require additional documents once they begin scrutinizing your loan file.

Borrowers can help speed the process along by returning those documents as quickly as possible. You don’t have a ton of control once you are under contract on a home, but this is one key area where your swift action—or lack of it—can have a big impact on your home-buying timeline.

Follow the Rules for a Tax-Free Home Sale

Follow the Rules for a Tax-Free Home Sale

When you are ready to sell your home you are probably focused on your potential profits, particularly if you plan to buy another home with the proceeds from the sale.

While REALTOR® commissions and other closing costs will impact how much you keep from the transaction, fortunately, if you’re like most sellers, you won’t have to pay a capital gains tax on your federal income tax return on profits up to $250,000 or $500,000 depending on how you file your taxes.

The Taxpayer Relief Act of 1997 made it easier for more sellers to qualify for the capital gains tax exclusion. Prior to that date, the exclusion was limited to a once-in-a-lifetime benefit and only to sellers over age 55.

There are a few requirements you must meet to avoid capital gains taxes on your home sale, including:

§  The capital gains tax exclusion is limited to $250,000 of the profits from the sale of your home if you file taxes as a single person and to $500,000 of the profits if you file taxes jointly.

§  You must have lived in your home for at least two of the previous five years. The time that you live in the home doesn’t have to be within the past two years and doesn’t have to be altogether in one solid block, either. You can live there in two different years within the past five years and have that count. You don’t have to be living there when the house is listed for sale, either.

§  If you have used your home as a rental property and want to sell it, make sure you have lived in the home yourself for two of the past five years. In other words, if you lived in it for two years and want to sell it, make sure you sell it before you have rented it for more than three years.

§  Your home must be your principal residence rather than a vacation home or second home to qualify for the tax break.

§  You can invest the profits in anything you want. Before 1997, IRS rules said that you had to reinvest your profits from the sale of one home into another within two years to avoid paying taxes. Since 1997, taxpayers are not required to buy another home.

§  If you are married, you and your spouse cannot have used the capital gains exclusion within two years prior to your transaction.

Partial Exclusion

Even if you don’t qualify for the full capital gains tax exclusion, you may qualify for an exception to the two-year residency rule. Some examples of reasons you could be exempt from the two-year rule include an early move due to:

§  A change in your employment location

§  A health concern that forces you to move

§  Deployment for the military or foreign service

§  Divorce or separation

§  “Unforeseen circumstances,” such as an act of war or terrorism, or multiple births from one pregnancy.

Medicare Tax

The Affordable Care Act of 2010 imposed an additional potential tax on the sale of real estate, but this tax impacts only high-income individuals who earn $200,000 or $250,000 for a couple. This tax, designated to supplement Medicare expenses, imposes a 3.8% tax only on the amount of profit above the exclusion for capital gains taxes.

The only sellers who must pay this tax are those who have an income above the threshold and who also sell a house with profits above the capital gains exclusion. The tax is imposed only on the difference between your profit and the excluded amount, not the full profit.

Consult IRS Publication 523, “Selling your Home,” or consult a tax advisor to make sure you are following the correct rules related to the individual circumstances of your home sale.

Can’t Decide Whether to Buy a Home? Bring in the Pros

Can’t Decide Whether to Buy a Home? Bring in the Pros

If you are leaning toward buying a home but can’t decide if it’s the right move to make now, then you may want to consult some professionals.

There are a variety of ways to learn about the process of buying a home and the responsibilities of homeownership. When you take a class or consult a professional you not only educate yourself about what it takes to buy a home, you also get a stronger understanding of your own emotional and financial readiness to become a homeowner.

Here are five ways you can learn from the pros:

1. Attend Homebuyer Seminars

Real estate companies, lenders or others with home-buying expertise will schedule a homebuyer seminar to provide some initial information to renters. Sometimes new home communities will offer a seminar to entice potential buyers to learn more about the development along with the process of buying. Typically, these seminars, where you can pick up general information about buying in your community, are free or low-cost and last a couple of hours.

The leaders of these seminars often include a REALTOR®, a lender and a representative from a title company. In some cases multiple REALTORS® will be in attendance to present educational material to potential buyers. The only disadvantage here is that you won’t always have a chance to ask individualized questions, but you can usually follow up later with any of the professionals for a private consultation.

2. Attend a Homeownership Fair

Many local governments sponsor a day-long conference or fair to encourage homeownership. Often you can learn about new home communities, home financing, home remodeling and homebuyer programs at these events, which often have displays with information along with a choice of educational sessions. Sometimes you can also meet one-on-one with a lender and have your credit checked so you can get an idea of whether you can qualify for a loan and how much you could borrow.

3. Take a Homeownership Class

A more comprehensive approach to buying a home is available through homebuyer education courses, typically offered by your state or local government or a nonprofit agency. These classes, often offered all day on a weekend or over one or two evenings, provide extensive financial information about budgeting and saving, financing your home and maintaining it. Some special homebuyer programs such as low down-payment loans or low-interest loans offered by your state government require these classes, which are often free.

4. Consult a Lender

Most lenders offer a free consultation to discuss your individual financial profile and to educate you about your loan options. Even if you’re not ready to buy, a meeting with a lender can give you good information about what you need to do to prepare to buy a home in the future.

5. Consult a REALTOR®

REALTORS® are generally willing to sit down with potential buyers to educate them about the process of becoming a homeowner. There’s no charge to talk to a REALTOR®. You may want to look for someone who has a reputation for working with first-time buyers so you know they are particularly good at explaining to novices the nuances of moving from renter to buyer.

Whether you are a year or more away from making a move or you are thinking that this year could be the one in which you buy your first home, getting professional advice is always wise.

5 Essential Questions to Ask a Contractor

5 Essential Questions to Ask a Contractor

It’s the contractor you pick who makes or breaks your remodeling project. Finding the right contractor for your job will determine the quality and timeliness of the work, and the amount of emotional and financial stress you will have to deal with.

To make sure you are getting the best work from a contractor, here are five questions to ask the candidates.

Tip: Listen for how prospective contractors answer your questions. Difficulty communicating now means difficulty communicating on the job later.

1. Would you please itemize your bid?

Many contractors prefer to give you a single, bottom-line price for your project, but this puts you in the dark about what they are charging for each aspect of the job.

For example, if the original plan calls for wainscot in your bathroom but you decide not to install it, how much should you be credited for eliminating that work? With a single bottom-line price, you have no way to know.

If you get an itemized bid, it will show the costs for all of the various elements of the job, including:

§  Demolition and hauling trash

§  Framing and finish carpentry

§  Plumbing

§  Electrical work

§  HVAC

§  Tiling or other floor covering installations

§  Lighting fixtures

§  Drywall and painting

That makes it easier to compare different contractors’ prices. If you need to cut the project costs, you can easily figure your options. Plus, an itemized bid becomes valuable documentation about the scope of your project, which may eliminate disputes later.

Contractors shouldn’t give you a hard time about itemizing their bids. If they resist, it’s a red flag for sure.

2. Is your bid an estimate or a fixed price?

Some contractors treat their bids as estimates, meaning bills could wind up being higher in the end. Be sure to request a fixed price bid instead.

If a contractor says he can’t offer a fixed price because there are too many unknowns about the job, then try to eliminate the unknowns. For example, have him open up a wall or examine a crawl space.

If you can’t resolve the unknowns, have the project specs describe only what he expects to do. If additional work is needed, you can do a change order—a written mini-bid for new work.

3. How long have you been doing business in this town?

A contractor who has been plying his trade locally for five or 10 years has an established network of subcontractors and suppliers in the area and a local reputation to uphold. That makes him a safer bet than a contractor who is either new to the business or planning to commute to your job from 50 miles away.

Ask for:

§  A business card with a nearby address, not a P.O. box.

§  References from one or two of his earliest clients. This will help you verify he hasn’t just recently hung his shingle.

4. Who are your main suppliers?

Contractors are networked with their suppliers. You can tap into information on your contractor’s reliability and level of quality by talking to proprietors of:

§  Tile shops

§  Kitchen and bath showrooms

§  Lumber yards

§  The pro desk at your favorite home improvement center

Ask about a contractor’s professional reputation, whether he has left a trail of unhappy customers in his wake, if he’s reliable about paying his bills — and whether he’s someone you’ll want to hire.

Your contractor should have no qualms about telling you where he gets his materials if he’s an upstanding customer.

5. I’d like to meet the job foreman—can you take me to a project he’s running?

Many contractors don’t actually swing hammers. They spend their days bidding new work and managing their various jobs and workers. That makes the job foreman—the one who’s working on your project every day—the most important member of your team.

Meet the foreman in person and see if his current job is running smoothly. Asking to meet the foreman on the job gives your general contractor an incentive to assign you one of his better crews, since you are more likely to hire him if you see his A Team.

If your contractor says he will be running the job himself, ask whether he will be there every day. He will want to give you a positive response—something you can hold him to later on.

How Can I Estimate My Home's Value?

How Can I Estimate My Home’s Value?

QUESTION: I’m very confused about how much my home is worth. I’ve checked on different websites for estimates but they vary a lot, and a couple of real estate agents have given me other potential prices. How do real estate comps work?

ANSWER: Most people find it difficult to determine how much their home is worth even with the help of an online value estimator because there are so many variables that factor into a home’s value. Essentially, a home is worth only what someone will pay for it. The selling price depends on the state of the local market, the condition of your home, and economic conditions—particularly mortgage rates and consumer confidence because those two issues impact affordability and the willingness of buyers to negotiate.

Since you have checked your home value on multiple websites, you already know that the price you see is just an estimate. While some websites provide one estimate of your home’s value, on realtor.com® you’ll see three: an average estimate, a low estimate and a high estimate.

Those estimates are based on algorithms in the “Automated Value Model” software system that include publicly available tax assessments and recent sales of comparable homes identified by the software. An estimated value does not have the accuracy of an appraisal, and tax assessments don’t typically take into account recent sales or market conditions.

The estimates you see online should be viewed as a starting point to discuss your home’s value with a qualified REALTOR®. REALTORS® have access to data about sales that have yet to be recorded publicly and they know about recent sales, homes on the market, and homes taken off the market for lack of a buyer. Real estate comps, formally known as a comparative market analysis, should take data about all those types of homes into account when evaluating your own home and its current market value.

Comparable homes are those within your community that are similar in size, with properties close to the size of yours, and built around the same time. The number of bedrooms and bathrooms and the amount of finished living space should be the same as your home. If your home is smaller or larger than the comparable ones, your REALTOR® can estimate the difference in your home’s value.

In addition to the basics listed above, comps also must take into consideration the condition and style of your home, the layout, the quality of the construction, the materials used, and any special features. For example, if your home has an exceptionally high-end kitchen compared to others in the neighborhood, your REALTOR® may increase your estimated home value. On the other hand, if your home has two full baths and others in the community have three full baths, your value could be a little lower than other comparable homes. The amount added or subtracted from your home value for a particular feature, such as a swimming pool, isn’t an exact science, but an experienced REALTOR® with knowledge of your community can make an educated guess.

A good REALTOR® will also factor in market conditions. If there’s an imbalance with more buyers than sellers, your home’s value is likely to be higher than recent sales since competition can drive up prices quickly. If the market in your area has slowed and sellers are competing for buyers, then your value could have declined.

When considering selling your home, interview several REALTORS® and choose someone with experience and a trustworthy reputation to estimate your home value.

4 Ways to Make a Great First Impression When Selling Your Home

4 Ways to Make a Great First Impression When Selling Your Home

When selling your home, first impressions matter. Just because your home is listed and the “For Sale” sign is firmly planted in the front lawn does not mean it will attract buyers.

A home needs to be visually appealing to encourage a sale. Even in a market where homes are selling quickly and at full asking prices, it is still crucial to spruce up your home and prove that it is worth every penny you are asking for it.

Here are four tips to help your home make a good first impression that beckons potential buyers:

1. Make an Enticing Exterior

The walk-up to your house should be inviting, not forbidding. Stay on top of your lawn mowing and driveway maintenance, and tidy up your front landscaping. This includes:

§  Moving all toys, bicycles and scooters away from the front of the house

§  Cleaning windows until they are sparkling

§  Making sure address numbers are in place and polished

§  Giving your front door, garage door and gutters a fresh coat of paint

§  Adding a few embellishments like a colorful welcome mat, a wreath for the door or a big potted plant to the side of your front door

§  Checking the roof to see if it needs repair, even if it’s cosmetic.

2. Shape Up the Interior

Once the exterior wows potential buyers, you can continue to make a great impression as they make their way inside.

For starters, clear any clutter. If you have too much furniture, put some of it in storage. Keep kitchen and bathroom countertops as clear as possible. Closets and shelves should be well-organized and give the impression that they are spacious.

Remove excess knickknacks or family photos that make the house feel like your home, instead of allowing potential buyers to picture themselves as the residents.

Clean the inside of your home from top to bottom. Dust and open all your blinds and curtains to let light in. Wash away smudges from walls and touch up the paint as necessary. Wipe down the inside and outside of your appliances and microwave. Remove ash from your fireplace. Get your carpets cleaned and vacuum your floor each morning before potential buyers view your house.

Addressing aesthetics can leave a lasting, favorable impression. So, hang fresh, clean towels in the bathrooms. Position a beautiful centerpiece in the center of your dining room table and a few potted plants in decorative containers throughout your home. Consider placing potpourri in key spots, especially if you need to eliminate pet odors or if you have a smoker in the house.

3. Check on Evening Appearance

Even if you’re positive your home is presentable during the day, double-back to the exterior and interior areas at dusk to gauge your home’s ambiance in the evening.

Ensure that the walkway is well-lit and house numbers are visible, and that outdoor lighting enhances the home’s appearance.

Inside, make sure to replace nonfunctioning light bulbs in fixtures and vanities, and leave key decorative or track lighting turned on so that the home doesn’t seem dark upon entering.

4. Make Necessary Repairs

Repair anything that is broken. Cabinet doors should close properly. All your faucets should be drip-free.

Remember, you are trying to present a simple, clean, attractive, problem-free home that exudes potential—an empty, yet enticing palette for your home’s next owners.

Taking time to create a great first impression sometimes is all it takes to quickly send a offer your way.

This article is updated from a previous version by Michele Dawson/Realty Times.

Home Seller, Try a Full Price Counteroffer

Home Seller, Try a Full-Price Counteroffer

If you have received an offer on your home, congratulations are in order. More than likely, you have taken the steps to get your house in good condition for sale and worked with a REALTOR® to price it appropriately for the market.

Once you have an offer (or more than one) in hand, it’s time to start the negotiation process by responding to the buyers.

You have three options for responding to an offer for your home:

§  Accept the offer: If you are happy with every detail of the buyers’ offer, you can accept it and schedule a settlement date.

§  Reject the offer: If you are unhappy with everything about the buyers’ offer, including the price and the contingencies, you can reject it outright. The buyers may come back with another offer if they’re interested in pursuing the property.

§  Make a counteroffer: You can open negotiations with buyers by responding to their offer with an offer of your own that changes the price or other details of their contract.

Evaluate Each Offer

If you and your REALTOR® have carefully evaluated your local market conditions and compared similar homes to yours, you may feel that buyers should respect your efforts and offer you the price you listed. However, even in a seller’s market the average list-to-sales price is closer to 97% or 98%, not 100%. Even so, this does not mean you necessarily need to reduce your sales price if you receive a less-than-full-price offer.

If you are in a seller’s market and receive multiple offers, you are more likely to have at least one of those offers at full price; but it’s important to base your next move on a variety of factors, not just price. Make sure that each offer you receive is backed with cash or solid proof of financing from a reputable lender. Check each offer for contingencies to see if they’re acceptable. Some buyers may ask you to agree to make repairs after a home inspection, to buy down their mortgage by paying a point or two, to convey furniture or other items, or to contribute to their closing costs.

Full Price Counteroffer

You can counter the buyers’ offer with a full-price counteroffer of your own and see how the buyers respond. Many buyers are prepared to pay full price but think they should open negotiations with a lower offer.

Keep in mind your market conditions and how long your home has been listed for sale. If you are in a buyers’ market, you may need to accept a lower price for your home. If your home has been on the market for a short time, you can probably safely counter with your original price; but if your home has been on the market for 90 days or more, then you should consult with your REALTOR® and consider accepting an offer that is less than full price. Your REALTOR® can tell you the average time that homes are listed for sale and the average list-price-to-sales-price ratios for your area.

If price is the most important aspect of the sale to you, consider a counteroffer at full price but perhaps offering other concessions such as your willingness to convey specific items with the house or your flexibility on the closing date.

Your counteroffer opens up the option for further negotiations with prospective buyers, but it’s important to keep market conditions in mind so you don’t lose a potential sale.