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Don’t Buy That Fixer-Upper Unless...

Don’t Buy That Fixer-Upper (Unless You Know These 4 Things

A few years ago, Alessandra Pollina and her husband, Ondre, were looking for a property that would need no more than some cosmetic changes and upgrades. But because the price was right, they ended up with the ultimate fixer-upper: a two unit, single-family-style home that was already gutted to the studs.

They were excited about its potential, not to mention the one-half acre of land the house is sitting on. “That's unusual for Boston," Pollina says. “It's the biggest backyard ever."

Four years and many renovations later, Pollina estimates her home in the Dorchester neighborhood is worth (drum roll, please) an epic 56% more than it was when she bought it. Wow, talk about a return on investment.

The moral? A fixer-upper isn't necessarily something to eschew. If the right  things are wrong with a house, you could not only turn it into your dream home, but also earn serious equity (wealth building!) in the process.

Oh, and don't assume you need to be a DIY master to make it worthwhile, either. Time and patience may be all you need.

Here's how to tell if that fixer-upper is a keeper — or if you should keep walking.

#1 Evaluate the Price

If it's a fixer-upper, it should come at a fixer-upper price. Duh, but that's a reminder NOT to fall in love too quickly with a home that the listing says “just needs a little TLC." Do your homework first, and if the price is right, then fall in love.

Find out what similar homes in the neighborhood sell for and how tricked out they are (with amenities and materials). A REALTOR® can help you figure that out. And that will tell you how much money you can invest in the home before you over-improve for the neighborhood, a mistake you want to avoid if you plan to sell in the future.

Wendell De Guzman, a Chicago real estate investor who renovates at least two houses a month, recommends treating the remodel like a business, not a hobby. Determine your budget based on the market value of homes in your neighborhood, because you're not going to sell for more.

"It doesn't matter how much money you can put into the house," Guzman says. "You're limited by the market value of what nearby houses are selling for."

#2 Start Evaluating What Improvements Are Needed

The best fixer-uppers offer lots of opportunities for “instant equity," which means if you sold the home tomorrow you'd pretty much get that money back, unlike other projects which you may never get your money back on. ( anyone?)

Some can be as simple as painting or landscaping, which you can accomplish with sweat equity, De Guzman says. In fact, the Pollinas started their rehab with high-value, low-effort landscaping, since it's the first thing people see. They raked, brought the grass back to life, planted fruit trees and a veggie garden, and enjoyed the reaction: “People are so surprised and impressed," Alessandra says.

Other tasks — the Pollinas focused on the kitchen next — may require the work of professionals and cash to pay them. It's those projects you want to carefully evaluate against the home's price.

#3 Which Hire-a-Pro Projects Add Instant Equity?

Fact: While most home improvements add some equity, some are consistently at the top of the heap. Another thing those equity champions have in common: They usually require the help of a pro, but the cost can be instantly  worth it.

Based on data gleaned from the “Remodeling Impact Report" (RIR) from the National Association of REALTORS®', if these three projects are on your fixer-upper's list of must-haves, then you may have found your dream equity-builder:

                           

  • New roof: A new roof may not be the remodeling project of your dreams — until you realize it could actually pay  you. You'll spend about $7,500 to install it (based on a national average determined by contractors responding to the RIR survey), but when you sell, it could recoup 109% of that or $8,150, according to REALTORS® surveyed.
  • Hardwood floors: It costs about $3,000 on average nationally to refinish hardwood floors. The survey indicates you could recoup 100% of that at resale. If you're looking at a fixer-upper (at the right price) that needs the floors redone, that's like getting the floors for free! New hardwood floors are also a good choice at a cost of about $5,500 to install, and could recoup $5,000 of that at resale.
  • Insulation: A fixer-upper offers a great opportunity to replace or add insulation. New insulation costs about $2,100 on average nationally, and can recoup $1,600 at resale — as if saving 10% to 50% on your energy bill wasn't compelling enough.

    While those three are pretty safe bets — homeowners who responded to the RIR survey gave them high happiness and satisfaction marks, too — almost any project can be worth it with a fixer-upper if the price is right. For example, a complete kitchen renovation can cost $65,000 and recover only about $40,000 when you sell. But if the fixer-upper is discounted enough, think how amazing it would be to cook in a kitchen you designed yourself.#4 Evaluate Your Ability to Deal with Disruption

    Whether you're a DIY Jedi or content to let the pros handle the remodel, if your patience is shorter than your potential home's to-do list, a fixer-upper may not be a good choice.

    Renovating a bathroom alone can take two to three weeks. Add hardwood flooring, a new kitchen, and siding, and you're looking at a whole summer's worth of rehab.

    When considering a fixer-upper, evaluate the limits of your emotional energy as well. Inevitable project pitfalls and delays can be wearing. Only if you have the time, patience, and emotional endurance for a fixer-upper will it be a good fit for you. And only you can determine that.

    But if you can budget your time and money — and employ the right fixer-upper strategies — you might find yourself with a double reward: A home that's worth far more than you paid, and the joy of knowing you helped get it there.

While those three are pretty safe bets — homeowners who responded to the RIR survey gave them high happiness and satisfaction marks, too — almost any project can be worth it with a fixer-upper if the price is right. For example, a complete kitchen renovation can cost $65,000 and recover only about $40,000 when you sell. But if the fixer-upper is discounted enough, think how amazing it would be to cook in a kitchen you designed yourself.

#4 Evaluate Your Ability to Deal with Disruption

Whether you're a DIY Jedi or content to let the pros handle the remodel, if your patience is shorter than your potential home's to-do list, a fixer-upper may not be a good choice.

Renovating a bathroom alone can take two to three weeks. Add hardwood flooring, a new kitchen, and siding, and you're looking at a whole summer's worth of rehab.

When considering a fixer-upper, evaluate the limits of your emotional energy as well. Inevitable project pitfalls and delays can be wearing. Only if you have the time, patience, and emotional endurance for a fixer-upper will it be a good fit for you. And only you can determine that.

But if you can budget your time and money — and employ the right fixer-upper strategies — you might find yourself with a double reward: A home that's worth far more than you paid, and the joy of knowing you helped get it there.

 

How Long Does It Take to Buy a House?

There are a lot of steps to buying a house, and that takes time: It takes 50 days on average to just close on a home.

 

How long does it take to buy a house? A lot depends on how much time you spend shopping for one. But once you have a contract, it takes an average of 50 days to close on a house.

There are a lot of steps to buying a house, and any of them could drag out the timeline, especially if you're not prepared. Here's the home-buying timeline, broken down step-by-step, so you can be in control:

1. Do Your Homework

Time: 1-14 day

Dreaming about owning your own home is one thing; making it happen is another. To get beyond the dream stage, you need to do some critical research to help you figure out what you — along with how much can you afford. 

It's mighty disappointing to fall in love with a house only to find out you can't afford it. A quick chat with your bank can help you avoid that heartbreak — it's called pre-qualifying. But it's no guarantee you'll get a mortgage (that comes later), only an indication of how much you can afford.

2. Find An Agent

Time: 1-7 days

Finding an agent who suits you is key to the home buying process. They should be your most trusted adviser. Look for one with intimate knowledge of your desired community. If they know the inside scoop, they'll know a great deal (or a bum one) when they see it.

3. Get Pre-Approved for a Loan

Time: 5-8 business days

Getting pre-approved for a loan signals you're a serious buyer. Most agents recommend you have a pre-approval in hand before you make an offer, and they can offer recommendations for lenders. But pre-approval goes deeper than pre-qualification. It needs a ton of documents from you. A couple of tips to help make this a speedier process:

  • Get all your documents for mortgage pre-approval organized and ready to go.
  • Compare rates from lenders within a 14-day window: Credit bureaus will count all their checks as just one. (That's good news for your credit score.)

4. Shop

Time: A few days to a few months

Here's where things really vary. There are so many variables. If you're set on a particular neighborhood where the inventory is low, it could take longer… or you could discover "the one" on day one. It all depends on what you're seeking and what's available. But the typical buyer actively searches for 10 to 12 weeks and looks at a median of 10 homes.

5. Make an Offer, Negotiate, and Sign a Contract

Time: 1-7 days

Work with your agent on price, contingencies, and other terms of the deal. A couple of tips to help make this step proceed smoothly:

  • Include the pre-approval letter from your lender in the offer, and put down earnest money. (Commit 3% to 4% of the sale price instead of the standard 1% to 3%, and you might really put a fire under them.)
  • If you receive a counteroffer, respond ASAP. You don't want to give another buyer time to jump in with a better offer.

Related: Tips for Making an Offer on a House

6. Get Final Mortgage Approval

Time: A few days to 3 weeks

Getting pre-approved for a mortgage doesn't automatically mean you get a loan on the home you have under contract. The lender has a few other requirements once the home is chosen, such as an inspection and appraisal. And they'll want to see even more current copies of your financial documents.

From this point on, the steps to buying a house will often overlap, so you'll have several wheels in motion.

Related: "I Need 20% Down" and Other Myths About Mortgages

7. Get a Home Inspection

Time: 3-7 days to schedule; 2-3 hours to inspect

As soon as your contract is accepted, contact an inspector to get on their books. The inspection itself will only take two or three hours, but unfortunately, they're not quite Amazon. They seldom show up the next day.

However, they can get the report to you quickly. Many inspectors take pictures and fill out the report as they go, then send it to your inbox within hours of completion. But it can take up to a couple of days if they're backed up.

If the inspection turns up issues, it can cause some delays. This can range from a day or two to renegotiate, or longer if, for example, you have an FHA loan that requires certain safety standards. A home with peeling lead paint may need to be repainted, which can take weeks.

Related: A Home Inspection Checklist for Buyers

8. Get a Home Appraisal

Time: Up to 5 days to schedule; a few hours to do the appraisal; up to 5 business days to get the report to the lender

The appraisal is key to getting a mortgage. If the home fails to appraise for the mortgage amount, you may have to put more down or renegotiate the contract. That's why you want to line up an appraiser as soon as you have a house under contract. And unlike the home inspection, this report goes to the lender instead of you and takes longer because the appraiser has to do additional research on what homes are selling for in the area.

9. Get Title Insurance

Time: 1-3 business days for title check; 2 weeks for insurance policy

Your title company will perform the check, which means they'll look at deeds and other documents to make sure you will own the home free and clear of any liens or former claims to the property.

10. Get Homeowners Insurance

Time: Up to 2 weeks

Your company may send someone out to assess the property for potential risks, which can take several days. And your mortgage lender may require other types of coverage, such as flood insurance.

11. Arrange for Closing Funds

Time: A few minutes to a few days

Find out from your agent whether you need to bring a cashier's or certified check or transfer funds digitally. Transfer the funds to the right account, and get your money ready to release.

If you ever receive wiring instructions call your agent or lender to confirm one of them sent it. Call the phone number you have on record for your agent, not the one listed in the suspect email.

12. Conduct a Final Walk-Through

Time: 1 hour, the day of or day before closing

This is your chance to make sure the sellers made any agreed-upon repairs and left the property in as good (or better!) condition than the last time you saw it.

13. Close on the House

Time: 50 days on average; 1-2 hours to actually sign the paperwork

Each step after you've got a contract on a home is part of the closing process. And that process —  which includes getting the loan, inspection, appraisal, title, insurance, etc. —  takes the average home buyer about six weeks. 

When it's time for the main event, bring your photo ID, and stretch your hand muscles; you've got a lot of signing to do! But getting the keys? Takes hardly any time at all.

 

Home Buying and Selling During the Pande

Home Buying and Selling During the Pandemic: What You Need to Know

Technology and good-old-fashioned creativity are helping agents, buyers, and sellers abide by COVID-19 health and safety practices while getting deals done.

Some buyers are touring houses virtually. Others visit in person while remaining at least six feet from their agent. Sellers are hosting open houses on Facebook Live. Appraisers are doing drive-by valuations. Buyers are watching inspections via video call. Masked and gloved notaries are getting signatures on doorsteps.

“We have had to make some adjustments, for sure,” says Brian K. Henson, a REALTOR® with Atlanta Fine Homes / Sotheby’s International Realty in Alpharetta, Ga. “Everyone is trying to minimize face-to-face interactions. There have been some delays, but mostly, deals are getting done, just with tweaks.”

Here’s what home buying and selling during the pandemic looks like.

Showings Go Virtual

The rules around in-person showings vary by city, county, and state. Some allow them and some ban them. Check with your state, county, and local government to get the latest on business closures and shut-down rules.

Agents have conducted home tours via FaceTime and other similar tools for years. But these platforms have proven invaluable for home buying and selling during the pandemic. Real estate sites report a surge in the creation of 3D home tours. Redfin, a real estate brokerage, saw a 494% increase in requests for video home tours in March.

“I’ve done several FaceTime showings,” says Henson. He conducted virtual showings before COVID-19, too. He recently closed a deal on a home the buyers only saw on video, he says, but hasn’t yet done so during the pandemic.

In places where in-person showings are allowed, agents wipe down door handles, spray the lockbox with disinfectant, and open up the house, closets, everything for a client. “We leave all the lights on so no one touches switches, and we don’t touch cabinets or doors during showings,” Henson says.

Safe-Showing Guidelines

The NATIONAL ASSOCIATION OF REALTORS®, which produces HouseLogic, recommends only one buyer enter a home at a time, with 6 feet between each guest. NAR also recommends agents have potential buyers wash their hands, or use hand sanitizer when they come in the door. They should also remove their shoes. No children should be present at showings, either.

"We're living in extraordinary times and unusual circumstances. If you have the ability to work, you have to be creative,” Mabél Guzmán, a Chicago real estate agent, told NBC News. Guzmán, who is also vice president of association affairs for NAR, has put together a video offering tips and strategies for virtual showings during the pandemic.

Down Payment Help

Many organizations offering down payment assistance to first-time home buyers have temporarily suspended the programs or changed the rules. You can check the status of programs in your area at the Down Payment Assistance Resource site.

Desktop, Drive-By Appraisals

Appraisers are essential workers in many areas, so home valuations are continuing. But often remotely. New, temporary rules from the Federal Housing Finance Authority allow drive-by and desktop appraisals for loans backed by the federal government.

In a desktop appraisal, the appraiser comes up with a home estimate based on tax records and multiple listing service information, without an in-person visit. For a drive-by, the appraiser only looks at the home's exterior, in combination with a desktop appraisal. The Appraisal Foundation has put out guidelines for handling appraisals during the pandemic. Here's the FAQ.

And here are specific new appraisal guidelines by agency:

On the other hand, some private lenders still require in-person appraisals, which are allowed even in areas with shutdown orders. Private lenders hold about 35% of first-lien mortgages, according to the Urban Institute

When appraisers come to your home, they should adhere to Centers for Disease Control guidelines, including wearing gloves and a face mask, keeping at least 6 feet apart from anyone in the home, and asking if the homeowners have been sick or traveled recently to a COVID-19 hotspot.

Inspections Via Live Video

Inspectors are now often working alone, no buyers in tow, and using hand sanitizer and alcohol wipes. The National Association of Certified Home Inspectors advises inspectors to videotape their inspection so clients can watch it at home later, or to use FaceTime or other live video chat apps to take their clients along on the inspection, virtually. They can also call clients with their findings after they’re done.

The American Society of Home Inspectors has also issued guidelines for inspectors so they keep themselves and the homeowners safe while providing an accurate assessment of a home's condition.

Mortgage Rates and Locks

With mortgage rates fluctuating quickly and closing times taking longer than usual, some lenders are extending mortgage rate lock periods. You can grab a good rate and hang on to it even if your lender takes longer than usual to process your loan.

But the protocol depends on the lender and the loan. Some lenders are offering this for all loans; others for refis. Check with your lender about its policy.

Employment Verification

An important step in getting a mortgage is proving the borrower has a job. In pre-coronavirus days, lenders called the borrower’s employer for a verbal verification.

The Federal Housing Finance Authority, which oversees Fannie Mae, Freddie Mac, and federal home loan banks, has relaxed the rules for loans backed by the federal government because so many businesses are closed.

Lenders for federally backed loans now accept an email from an employer, a recent year-to-date paystub, or a bank statement showing a recent payroll deposit as proof of employment.

Walk-throughs

Home buying and selling during the pandemic means real estate agents can conduct the final walk-through via video with their clients. Or they can just open the home and have buyers walk through on their own. Henson says he still accompanies his clients, but stays six feet away and has them wash their hands when entering and exiting the house. Everyone's wearing masks, too.

And, of course, when the buyers take possession, they should disinfect.

Remote Notarization Depends On Where You Live

About one-half of states have permanent remote online notarization (RON) policies. These allow a notary and signer in different locations to sign electronic document, usually by use of video apps like Zoom or FaceTime. Notaries will watch you sign either a paper document or do an electronic signature on an e-doc, via camera.

Some states have rolled out temporary rules allowing RON. Here’s a state-by-state listof notary law updates, and the type of remote notarizations allowed. The number of states allowing remote notarization could grow as federal and state pandemic legislation expands.

Closings Get Creative

Traditional closings, where everybody gathered around a big table to sign the final papers, are no longer possible. Title companies and banks are getting super creative in dealing with the limitations.

A Minnesota company, Legacy Title, rolled out a drive-thru closing service at one of its offices in an old bank branch building. The title company rep sits in a bank teller window and handles the closing papers while the customer sits in their car. Legacy completed 14 closings in the first week it offered drive-thru service.

Then there are drive-by closings, where the entire transaction takes place in cars. Masked and gloved notaries meet buyers in parking lots and pass documents through car windows.

“I had a closing where the buyer sat in her car the whole time. The attorney came out to her car, gave her paperwork, had her sign in her car, and my buyer never got out of her car,” Birmingham, Ala., agent Isaac McDow told WBRC television.

Says Georgia-based agent Henson, “I’ve had closings the last three weeks [that] I’ve been asked not to attend. There was one where the seller signed two days before buyer. Then the seller came back two days later and signed.”

Henson, who is also licensed in New York, has had to extend closing dates on two sales there since. Co-op boards won’t let non-residents into buildings ­­­– not even an electrician who needs to make repairs as part of an issue that came up in the inspection. He left the closing with an open-ended date.

“It’s all about being really flexible right now,” he says.

TIP: Find out if your county recording office can complete the deal online.

Student Loan Relief

Finally, if you're also trying to swing your student loan payments, know that federal student loan borrowers get an automatic six-month break in loan payments from April 10, 2020, through Sept. 3, 2020. Thanks to the Coronavirus Aid, Relief and Economic Security (CARES) Act, they also won't be charged a dime of interest in that time.

Learn more at the Consumer Finance Protection Bureau’s site.

Keep in mind that payment suspension only applies to federal loans owned by the Department of Education. Some help may be available to borrowers with private student loans and other loans (like Perkins Loans and Federal Family Education Loans) that aren't covered. But it's not automatic. Reach out to your student loan servicer for information.

So, Should You Buy or Sell?

The real estate industry is creatively and safely responding to the situation, and mortgage rates remain low. Your agent is a great source of information about home buying and selling during the pandemic to help you feel comfortable. But, ultimately, it's a question only you can answer.

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