Claudette's Blog

During the real estate boom years it was fairly common for a home warranty program to be included with a home purchase.   Many brokers would use them as listing tools and also to provide an incentive for home buyers to feel more comfortable with their purchase.  Now, with home sales down and agents needing to cut costs, the inclusion of a home warranty as part of the sale has become less prevalent.

When counseling new home buyers, I encourage them to consider a home warranty plan as part of their purchasing strategy. 

What is a Home Warranty?

As with any type of insurance, a home warranty provides the buyer with some peace of mind.

Not to be confused with a builder's warranty, a home warranty is actually a service contract and is typically purchased for existing homes.  For an annual fee, which ranges from $400 - $600, a warranty will cover major mechanical systems and appliances such as furnaces, air conditioning, plumbing and electrical items.

Types of Coverage

Since companies differ, you will want to find out specifically what is covered.  There is usually a basic plan with upgrades available. 

A basic plan usually covers:

• Heating systems
• Water heaters
• Plumbing systems
• Garbage disposals
• Dishwashers
• Ovens
• Ceiling fans
• Ductwork

Upgraded plans are available to cover items like your refrigerator, central air conditioning, clothes washer/dryer and swimming pool.

How Do They Work?

When something breaks down, you call the warranty company and they will send out a local contractor to diagnose the problem.  You then pay the contractor a flat fee, typically $50 to $100 for the service call.  Then, the warranty company covers the cost of the repair or replacement of the covered item.

When Should You Buy a Plan?

It's best to purchase a home warranty during the actual real estate transaction.  Some companies do not offer plans after the purchase and the ones that are offered after the sale are usually inferior. 

Before buying you should check to make sure that the company is licensed in the state and confirm that the company is real.  An experienced buyer broker will be familiar with the various warranty companies and should be able to provide you with the guidance necessary to make the right decision.

 Related Posts:

Property Disclosure - Who Has the Burden of Proof?

Real Property vs. Personal Property - What is Included in a Home Purchase?

Assessing the Value of a Home

Copyright 2009 - Claudette Millette, President, TheBuyersCounsel -  800-392-1446, E-mail    

Learn More about Massachusetts Home Buyer Representation - Greater Boston and MetroWest Massachusetts -  Serving Massachusetts Home Buyers Since 1992 

  Ashland, Holliston, Hopkinton, Natick, Newton, Northborough, Framingham, Sherborn, Southborough, Sudbury, Wayland, Westborough 

 I was recently asked about the connection between a property's assessment value and its potential selling price.  There is often confusion about the various methods that are used to evaluate property and it's important to be able to distinguish between them and to know how they may be helpful to you in your home buying decision.

Property Assessment - The assessment is a tool the town uses to determine your property tax amount.  In Massachusetts each town has an assessor who is responsible for determining the value of each property and its improvements.  The assessor reviews sales data from the previous year and, based on sales prices of similar homes, will arrive at a value for each parcel.  With today's declining real estate market, assessments do not necessarily reflect a property's fair market value since the data used may not be up-to-date or accurate. Because of this, it is not unusual to see a home listing with an assessment that is higher than the asking price.

Comparative Market Analysis - Real estate agents establish fair market value by compiling a report called a CMA or Comparative Market Analysis.  This analysis is based primarily on comparable properties that have sold in the same neighborhood, of a similar size and style and of a similar age.  The sales should have taken place no longer than six months ago to be valid comparable sales.  The analysis will also take into account properties that are currently on the market, under agreement and also those that have expired.  The goal of the CMA to a buyer agent, is to establish an offer price that is the lowest possible that a seller might accept. 

Appraisal - When you have an accepted offer on a property your bank will hire an appraiser to arrive at an estimate of value for the property you will be using as collateral for your mortgage loan.  An appraiser is licensed and trained in the practice of developing an opinion of value for real property known as Market Value.  Similar to the CMA, the appraiser will base the property value on three recent sales of similar properties in the same area that have sold over the past six months.  A professional appraisal is detailed and includes land to value ratio, general real estate conditions in the area, zoning information and a sketch of the property showing the layout of the rooms. 

All three methods of property valuation will factor into your home purchase. 

• The Assessment will assist you in calculating the property taxes,
• Your realtor's Comparative Market Analysis will help you to arrive at an appropriate offer price, and
• The Appraisal amount should support the price you are paying for the home.

Related Posts:

Home Warranties, Are They Worthwhile?

Real Property vs. Personal Property - What is Included in a Home Purchase?

Property Disclosure - Who Has the Burden of Proof?

Copyright 2009 - Claudette Millette, President, TheBuyersCounsel -  800-392-1446, E-mail    

Learn More about Massachusetts Home Buyer Representation - Greater Boston and MetroWest Massachusetts -  Serving Massachusetts Home Buyers Since 1992 

  Ashland, Holliston, Hopkinton, Natick, Newton, Northborough, Framingham, Sherborn, Southborough, Sudbury, Wayland, Westborough 

Barack Obama has asked for and has been granted the release of the second $350 billion from the Troubled Asset Relief Program funds to the treasury.    

The request had been met with some debate from lawmakers, some who have argued that the first $350 billion were largely wasted and that there has not been enough transparency to show if and how the bailout program has worked. 

Originally sold as a two-step rescue program, TARP was designed for the government to buy Wall Street's failing mortgage investments and then to rewrite those loans to help homeowners. 

Much of the first half of the money has been used to buy shares in banks on the brink of collapse but has not eased the credit markets enough to help borrowers who are currently trying to get loans.

Currently, on the table is legislation to use $40 to $100 billion of the second $350 billion to help people who are about to lose their homes because they cannot make their mortgage payments. 

                                                 Foreclosure Assistance

• One of the initiatives will call for an extension of the foreclosure freeze moratorium that is currently in place from Fannie Mae and Freddie Mac.  This freeze is due to expire at the end of this month.   
• Bringing down the costs of Hope for Homeowner loans through coverage of the fees is another suggestion in the plan.
• Servicer authority for foreclosure mitigation will provide a safe harbor from liability to servicers who engage in loan modifications to help home owners who are facing foreclosure.
• A program for loans to pay down second lien mortages is listed as part of the plan.
• A bill has also been introduced that would allow bankruptcy court judges to alter repayment terms on primary mortgages.

Last year there were a total of 3,157,806 foreclosure filings, including default notices, auction sale notices and bank repossessions which was an increase of 81 percent from 2007.  Currently, an estimated 81 million homeowners in this country are at risk of foreclosure.

One of the biggest criticisms of TARP has been the fact that, so far, it has not helped struggling homeowners.  It appears as though with the release of the second tranche of the $700 Billion program, the foreclosure problem will need to be addressed.  

                                                                               As foreclosure rates soar, some lenders are eager to negotiate short sales in order to avoid the expense of seizing a delinquent borrower's property.  A short sale is one in which the seller is trying to get the bank to accept an amount that is lower than what is owed on the property.  This will be a home that is facing foreclosure due to the fact that the homeowner is in financial distress.  In fact, a bank will usually only agree to a short sale if the borrower can prove a case of hardship, often due to a job loss or a major health issue.

Short sales can be true bargains for  home buyers, often allowing them to get into a home they would not otherwise be able to afford. 

However, a successful negotiation of this type of transaction is far from easy. To forge an agreement that satisfies all parties, including the homeowner, buyer and lender can be complex. 

Before venturing into a short sale, you should be aware of some basic information.

1. Be prepared for the process to be extremely lengthy.   The "short" in short sales has nothing to do with the time involved.  To the contrary, getting a response to your offer can initially take a few weeks.   
2. You will need to have your own loan pre-approved and ready to go.  It is unlikely that the bank will allow you to assume the seller's loan.
3. Be aware that the list price may not be the actual price the bank will be willing to accept. A broker who takes a short sale listing does her best to arrive at an asking price based on current neighborhood and market conditions but that price does not necessarily correlate with what the bank will find sufficient.  You need to know if the asking price is based on the fair market value of the property or if it is a figure that the seller hopes the bank will accept.  
4. A short sale will sell "as is."  That means that no repairs will be made.  You will usually be allowed to have a home inspection but any deferred maintenance will become your problem. Maintenance issues are usually part of the picture with any distressed properties since a homeowner who is struggling financially has often been neglecting repairs for some time.
5. If there is a second mortgage on the property, approval will have to pass by that lender as well.  Lenders holding second mortgages, such as home-equity lines of credit can stop the sale from proceeding.  Second mortgage holders are the last in line to be paid but will have to be offered an amount that they find to be acceptable to go along with the deal.
6. The lender can change the terms and the time to close.  Even after your offer is accepted, the closing will be determined by the lender's back-log of foreclosures and how much paperwork the seller has already submitted.  In order for the short sale to proceed, the seller has to submit a complete short sale package which consists of the following:  a) a written hardship letter stating the circumstances as to why payments cannot be made, b) the last two bank statements (checking and savings), c) the last two paycheck stubs, d) the last two income tax returns with all schedules, e) the last two statements for any other accounts including 401k accounts and d) any other paperwork that the bank requests.
7. Lenders can change the conditions of the sale up the last minute.  Many lenders reserve the right to renegotiate the terms of the short sale.  If market changes occur or new laws are passed, the bank can generally change the terms of the contract.  Since the announcement of the "Government Bailout" some banks are waiting to see how they will be affected before acting on these sales.
8. Some short sales are never completed.  The process involves dealing with a person sitting behind a desk who is in a city far removed from yours.  It is a situation that is fraught with red tape and bureaucracy and the bank contact is often not motivated to get the deal accomplished very quickly.

Even with all of these caveats, a short sale can offer the opportunity for you to get into a property that you may otherwise have not been able to afford.  This can be a rewarding experience but you should only go into this territory armed with expert help. 

Your Buyer Broker 

It is crucial that your buyer broker is knowledgeable about the mechanisms involved in the short sale transaction.  This involves a certain amount of due diligence to ascertain that the property is actually qualified for this type of deal and also requires your broker to know how to prepare the correct documents such as a competitive market anaylsis to support your offer price, a letter to the bank on your behalf and other necessary items that must accompany your offer on the property.

A Real Estate Attorney

As with all real estate transactions, be sure to hire an attorney to look over all of the documents involved in the purchase and to protect your interests.   

Copyright 2009 - Claudette Millette, President, TheBuyersCounsel -  800-392-1446, E-mail    

Learn More about Massachusetts Home Buyer Representation - Greater Boston and MetroWest Massachusetts -  Serving Massachusetts Home Buyers Since 1992 

  Ashland, Holliston, Hopkinton, Natick, Newton, Northborough, Framingham, Sherborn, Southborough, Sudbury, Wayland, Westborough 

As we say good-bye to a year that was one of the worst for the financial and housing markets since the Great Depression, it is incumbent on us to try to find a silver lining. 

What has 2008 left in its wake that may actually be helpful for new home buyers?

                       LOW INTEREST RATES

Since the Fed announced a plan to buy up to $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac and Ginnie Mae interest rates have dropped to their lowest in 37 years.

The government's plan, which may continue to drive down mortgage costs, is to buy  $500 billion in mortgage-backed securities by mid-2009.   

Rates on a 30-year fixed-rate mortgage have dropped to an average of 5.10.  The rate was 6.07% exactly a year ago.

The 15-year fixed-rate mortgage is averaging 4.83 percent, down from 4.91 percent and is the lowest rate since March 25, 2004. 

Adjustable rates are also lower with the one-year adjustable at an average of 4.85 percent and the "5/1" ARM, set at a fixed rate for five years and adjustable each following year, averaging 5.57 percent. 

FIRST-TIME HOMEBUYER TAX CREDIT

The Housing Assistance Tax Act of 2008, part of the housing bill signed into law on July 30, included a provision to help first time buyers.

 Available for a limited time, the credit:

1. Applies to home purchases between April 8, 2008 and July 1, 2009.
2. Reduces your tax bill dollar for dollar.
3. Is fully refundable, meaning that the credit will be paid to you even if you owe no tax.

How does it work?

The $7500 "tax credit" is actually an interest free loan from the government.  The money will be given to you as a tax credit and you will the repay the loan over the next 15 years.   With this program:

• You can receive 10% of the purchase price of your home, capped at $7,500 in the year that you buy.
• To qualify, your income must be no more than $75,000 single or $150,000 for a married couple filing jointly.  Partial credits are available to those earning more.

What is the IRS's definition of a first-time home buyer?

A first time home buyer is one who has not owned a principal residence during the prior 3 year period.  For married couples, you must both be first-time buyers.  A home may include townhouses, condos, mobile homes and houseboats, as long as their will be primary residences. 

How is the credit repaid?

The credit is similar to a 15-year interest free loan.  It is repaid in equal annual installments beginning with the second tax year after the purchase of your home and is included on your income tax return.  The payment on the full $7,500 credit would be $500 a year for 15 years.

A BUYERS' MARKET

A record number of foreclosures, short sales and unsold inventory have provided us with one of the largest buyer's markets on record. 

Unhappy sellers who are competing with foreclosure properties and an overstocked market are being forced to lower their prices.   With increased unemployment and a continuation of foreclosures, there are be plenty of deals to be had for home buyers this year.

If you are in the position of looking for a new home, align yourself with a knowledgeable buyer broker who is familiar with the area you are looking in and who has the experience necessary to help you to find the right house and negotiate a great deal in 2009.

Copyright 2009 - Claudette Millette, President, TheBuyersCounsel -  800-392-1446, E-mail    

Learn More about Massachusetts Home Buyer Representation - Greater Boston and MetroWest Massachusetts -  Serving Massachusetts Home Buyers Since 1992 

  Ashland, Holliston, Hopkinton, Natick, Newton, Northborough, Framingham, Sherborn, Southborough, Sudbury, Wayland, Westborough