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10 Laws All Landlords Need to Know

Dozens of federal, state, and local laws govern the residential rental industry and the landlord-resident relationship. All of these laws are important. The following calls to your attention ten important laws for you to know and follow when you’re a landlord.

The Fair Housing Act
The Fair Housing Act prohibits you from discriminating against applicants or residents based on any of the seven protected classes:

  • Race
  • Color
  • Sex
  • National origin
  • Religion
  • Handicap
  • Family status

The Fair Housing Act establishes only the minimum protections. States and localities may set additional protected classes, such as source of income — whether a person’s income is from a job, alimony, child support, unemployment, welfare, disability payments, and so on.

The Fair Credit Reporting Act
According to the Fair Credit Reporting Act (FCRA), you may use credit reports to evaluate rental applications. However, if you deny housing to an applicant based on information contained in the credit report, you must provide the applicant with an adverse action notice that includes the following information:

  • The name, address, and telephone number of the credit-reporting agency (CRA) that supplied the credit report, including a toll-free telephone number for CRAs that maintain files nationwide
  • A statement that the CRA that supplied the report didn’t make the decision to take the adverse action and can’t give the specific reasons for it
  • A notice of the applicant’s right to dispute the accuracy or completeness of any information provided in the credit report, and the applicant’s right to a free report from the CRA upon request within 60 days

The FCRA also comes into play if you want to report the nonpayment of rent to one or more CRAs. If you report a resident for nonpayment of rent and the resident cures the debt, you’re legally obligated to update the resident’s credit report to indicate that the debt has been cured.

The implied warranty of habitability
The implied warranty of habitability requires that landlords provide residents with living space that’s fit for human occupancy. To be habitable, living space must have heat when it’s cold, running water, a sufficient amount of hot water, plumbing and electricity that function properly, and so on. Landlords must also maintain clean and sanitary buildings and grounds — free of debris, filth, rubbish, garbage, rodents, and vermin.

If a rental unit is uninhabitable, residents have the right to withhold rent until the necessary repairs are made or, in more serious situations, terminate the lease.

Although your residents are responsible for repairing anything they or their guests break, you’re required to perform any repairs required to maintain fit and habitable living conditions, and you must complete the repairs in a reasonable period of time.

The mutual covenant of quiet enjoyment
Implied in every lease and rental agreement is the mutual covenant of quiet enjoyment, which grants all residents the right to the undisturbed use and enjoyment of the rental property. This covenant applies to you, as landlord, in two ways:

  • You’re not allowed to enter a resident’s unit whenever you want. You can enter in an emergency that threatens life or property, when you ask and the resident gives you permission, and to perform necessary inspections or repairs or show the unit to prospective renters or buyers (only after giving the resident sufficient notice).
  • You need to reasonably investigate complaints and potentially take action against any resident who’s disturbing his neighbors.

Your state’s security deposit rules
Every state has a security deposit statute that typically specifies the following:

  • How the security deposit is to be held — usually in an interest-bearing account in an in-state bank
  • What the security deposit may be used for — usually to cover unpaid rent, damage beyond ordinary wear and tear, and cleaning to make the unit as clean as it was when the resident moved in and sometimes to repair or replace the landlord’s personal property in the unit if that use is mentioned in the lease
  • When the unused portion of the security deposit must be returned to the resident
  • That the landlord provide an itemized invoice of any money deducted from the security deposit

Disputes over security deposits are common and frequently lead to the resident taking legal action against the landlord. To protect yourself, comply with your state statute, and take the following precautions as good business practices, even if it isn’t required under the applicable statute:

  • Have a separate interest-bearing account for holding security deposits.
  • Complete a move-in/move-out checklist to document the condition of the property at the beginning and end of a resident’s stay.
  • Take photos or video of the property to create a visual record of the property’s condition at the beginning and end of a resident’s stay.
  • Keep receipts for all repairs and cleaning required to prepare the unit for the next resident, even though you’re permitted to charge the resident only for damage beyond ordinary wear and tear, and cleaning to make the unit as clean as it was when the resident moved in.
  • Return the unused portion of the security deposit to the resident as soon as possible as required by state law.
  • Along with the unused portion of the security deposit, include an itemized list of all costs deducted from the security deposit.

The Residential Lead-Based Paint Hazard Reduction Act
The Residential Lead-Based Paint Hazard Reduction Act, in part, requires that landlords inform residents of the hazards posed by lead-based paint. If your rental property was built prior to 1978 (the year the EPA banned lead paint) you’re required by law to do the following:

  • Disclose all known lead-based paint and lead-based paint hazards and any available reports on lead in the property.
  • Give renters the EPA pamphlets “Protect Your Family From Lead in Your Home” and “The Lead-Safe Certified Guide to Renovate Right.”
  • Include certain warning language in the lease as well as signed statements from all parties verifying that all requirements were completed.
  • Retain signed acknowledgments for three years, as proof of compliance.
  • Housing that is exempt from this rule include the following:

  • Units that have no bedrooms, such as lofts, efficiencies, and studio apartments
  • Short-term rentals of fewer than 100 days
  • Housing designated for the elderly or the handicapped unless children live or are expected to live there
  • Property that’s been inspected by a certified inspector and found to be free of lead-based paint

State-required disclosures
In addition to the federal lead-based paint disclosure, many states require that landlords disclose one or more of the following:

  • Environmental hazards, including periodic pest control and herbicide treatments, toxic mold, asbestos, radon gas, bedbug infestation, and methamphetamine contamination
  • Recent flooding or location in a flood zone
  • Security deposit policies and procedures
  • Nonrefundable fees, such as a pet fee, where such fees are allowed
  • Smoke detector location and maintenance requirements
  • Nearby military ordinance, such as a US Army base
  • Smoking policy
  • Landlord’s or property manager’s name and contact information
  • Any shared utility arrangement

Your state’s Landlord Tenant Act
Nearly every state has a version of the Landlord Tenant Act, which defines the rights and obligations of the landlord and the tenant (also known as the resident), legal remedies for breach of contract, possible defenses to legal actions, and much more. To find your state’s landlord tenant act, search the web for your state’s name followed by “landlord tenant act” and click one of the links that looks promising. If that doesn’t work, track down your state’s official website, and search that site specifically for something like “landlord tenant” or “residential rental laws.”

Eviction rules and procedures
If you need to evict a resident, turning off electricity, gas, and water to the unit to compel the resident to leave is illegal. You must follow your state’s eviction rules and procedures, which typically require that you perform the following steps:

1) Check your state’s landlord tenant act to find out whether you have legal grounds to evict the resident.

2) Give the resident reasonable notice of your intent to file for eviction, including the reason you intend to do so and, if required by state law, the time the resident has to address the issues.

3) Wait until the morning after the deadline specified in your notice, and then file for an eviction hearing at your county’s courthouse.

4) Assuming you prevail in court, wait until the day after the court’s deadline for the resident to move out, and if the resident hasn’t moved out yet, call the sheriff to evict the resident.

Failure to follow your state’s eviction process could result in your losing your case. The resident may end up living in the property for some time, perhaps without paying rent. In addition, the resident may be able to file a legal claim against you in civil court and force you to pay damages, legal fees, and penalties.

Mitigation of damages
When a resident breaches a lease, for example by moving out three months into a one-year lease, the resident is obligated by the contract to continue to pay rent. However, you can’t just let the unit remain vacant for nine months. You’re legally obligated to take steps to mitigate (lessen) the resident’s losses. In this example, ways to mitigate the damages include:

  • Accepting a replacement the resident recommended to rent the unit for the months remaining on the lease, assuming the recommended replacement qualifies
  • Advertising the unit to find a new resident, screening applicants, showing the unit to qualified applicants, and so on

Gather evidence of your attempts to re-rent the property, such as advertisements, records of applicants you screened, and dates on which you showed the property to qualified applicants.

4 Common Eviction Mistakes Landlords Make

When renting out a property you own, it is only natural to want to make the most money and incur the least expense. Unfortunately, for some landlords, this leads to cutting corners in the legal department; a potentially very costly mistake. The following are a few common mistakes landlords make during the eviction process and what you can do to avoid them:

Self-Help Eviction
The single biggest mistake landlords make (particularly those who have never rented property before) is engaging in what is known as a “self-help eviction.” The logic goes something like this: “I own the property, so I should be able to change the locks/move the tenant’s things out/turn off the utilities/harass the tenant into paying or moving/etc.” Unfortunately, this is not the case. By allowing someone to take possession of the property under a lease agreement, you have given them certain rights in the property. The only way to legally extinguish those rights is by a court order. Attempting to coerce a tenant to move out or pay rent by changing locks or switching off utilities, or simply putting the tenant’s possessions outside is likely to lead to a confrontation with the police and a very unpleasant loss in court.

If you are trying to remove a tenant from the property, the only legal way to do that is by filing an action for eviction in the courts and obtaining a proper court order. Even then, the order requiring the tenant to leave the property is usually delivered by law enforcement and, if the tenant refuses to leave, is also enforced by the police. The landlord should not be involved.

Aside from the fact that self-help eviction is illegal and could expose you to civil liability to the tenant, even if the tenant is behind on rent), this conduct can actually be very dangerous. After all, you are messing with someone’s home, and that can cause a violent, instinctive reaction. Showing up unexpectedly and telling someone they have to get out could easily result in violence, which is another reason why law enforcement is typically responsible for delivering the bad news after a lawful eviction.

Inadequate Notice
The second biggest mistake in tenant evictions is failing to give proper notice. Most states have landlord-tenant laws that contain an actual form that should be used to notify a tenant that they must either pay or leave or you will file a lawsuit to evict them. This is sometimes called a “Notice to Quit” or in other states it may simply be called by the number of days the tenant has to pay or leave the property, like a “Three Day Notice.” Generally, before you can file for an eviction, you have to provide the tenant with such a notice to give them an opportunity to cure the problem or leave the property and, should they fail to comply, only then can you file your action to evict.

In other cases, you must provide notice when a lease is going to terminate. For example, if someone signed a one year lease, and you are near the end of that year and do not wish to renew, you usually have to provide the tenant with adequate notice of that intention. Otherwise, the tenants can “hold over” indefinitely, provided they pay their rent. It is only if you give adequate notice and then the tenant holds over that you will be entitled to seek an eviction.

No Evidence
Finally, many landlords forget that even an eviction proceeding is adversarial in nature and requires the landlord to carry the burden of proving its case. For example, you will likely need a copy of the lease agreement, evidence of a failure to pay or other breach by the tenant, evidence of providing proper notice under the law or the lease agreement, and if you are also suing for damages you will need evidence of the actual damage caused by the tenant. Failing to provide this evidence to the court could result in you having to start your case all over again and the tenant getting to spend weeks or months more in your property, possibly without paying you any rent.

Not Hiring an Attorney
Of course, the biggest mistake of all is assuming you know what you are doing if you do not. Most attorneys handling tenant evictions offer reduced rates given the usually very quick nature of these proceedings. Take advantage of this, particularly if it is your first eviction, to make sure you have acted properly as the landlord and that the eviction goes smoothly. Otherwise, you could end up not only having a non-paying tenant in your property for months while you figure out what you need to do, but you could even end up owing money to the tenant.

5 Reasons Not to Return a Tenant’s Security Deposit

When a tenant moves into a rental property, he or she will pay the landlord a security deposit in addition to first month’s rent. This deposit will typically be returned to the tenant at the end of the lease term, as long as the tenant follows all the terms of the lease agreement. Learn five reasons a tenant may not be entitled to the return of their security deposit, in whole or in part.

5 Times a Landlord Does Not Have to Return a Tenant’s Security Deposit

Each state has specific security deposit laws landlords and tenants must follow, including the reasons you can keep a tenant’s security deposit. However, here are five of the most common reasons a tenant should not expect their security deposit to be returned.

1. Breaking or Terminating a Lease Early
If a tenant breaks their lease, the landlord can keep all or part of the security deposit necessary to cover the costs associated with this breach. Again it will depend on the wording of your lease and the particular landlord-tenant laws in your state. If you have included an early termination clause in the lease the tenant signed, they will have to abide by these terms.

An early termination clause could read something like this, for example:

“If the tenant terminates the lease prior to the one year lease agreement or does not give 30 days’ notice prior to move out once the lease has gone month-to-month, the tenant is responsible for rent owed for the remainder of the lease. The landlord will deduct the amount owed from the tenant’s security deposit. If the security deposit does not include sufficient funds to cover the amount owed, the tenant is responsible for paying the additional money owed to the landlord for the remainder of the lease.”
You may also be able to charge the tenant the court costs or attorney fees necessary if you have taken legal action against them.

2. Nonpayment of Rent
Most states will allow you to keep all or a portion of the security deposit when the tenant does not pay their rent.

Nonpayment of rent is considered a breach of lease.

When a tenant does not fulfill their contractual obligation to pay their monthly rent, you are usually allowed to keep the portion of this security deposit necessary to cover the lost rent.

3. Damage to the Property
Another reason you may be able to keep a tenant’s security deposit is because they have caused damage to your property. Damage is different than normal wear and tear on the property. Here are some examples of each:

Normal Wear and Tear:

A few small nail holes in the walls from hanging pictures
A few small stains on the carpet
A small amount of mildew forming in grout lines in the shower tiles
Dirty grout
Tarnish on bathroom fixtures
Loose handles or doors on kitchen or bathroom cabinets
Reasonable amounts of dirt, dust or grime on the floors, walls, or appliances

Damage:

Multiple/large holes in the walls
Huge stains or holes in ​the carpet
Extensive water damage to hardwood floors
Missing outlet covers
Missing or damaged smoke or carbon monoxide detectors
Cracked kitchen or bathroom countertop
Broken bathroom vanity
Broken windows
Broken doors
Keys not returned at end of tenancy

4. Cleaning Costs
Under normal circumstances, you cannot make deductions from a tenant’s security deposit to cover normal cleaning costs.

If the cleaning necessary is excessive, and not the result of normal wear and tear, you may be able to keep a portion of the tenant’s deposit.

For example, if a tenant leaves one bag of garbage in the apartment, it is unreasonable to try and charge the tenant a portion of their security deposit to cover your labor. However, if the tenant has left trash all over the apartment, food in the refrigerator, and numerous personal belongings throughout the property, then yes, you may be able to keep a portion of the security deposit to cover your expenses, as the tenant has not left the property broom-swept clean.

Another example would be if a tenant had an animal that used the carpet as a toilet. You would be able to charge the tenant for the cost of cleaning or, if necessary, of replacing the carpet.

5. Unpaid Utilities
A tenant may not be entitled to the return of their deposit if they have not paid their utility bills. You may be able to keep a tenant’s security deposit to cover any utilities they have neglected to pay and were required to pay as part of their lease.

Be a Smart Investor… Do the Math

Should I use cash or credit? ARM loan or fixed rate? Ten percent down or twenty percent? Should I pay down debt or keep a cash reserve? These are all good questions, and here’s some of the answers.

Cash vs. Credit: The Concept of Leverage

In order to understand real estate financing, it is important that you understand the time value of money. Because of inflation, a dollar today is generally worth less in the future. Thus, while real estate values may increase, an all-cash purchase may not be economically feasible, since the investor’s cash may be utilized in more effective ways. Leverage is the concept of using borrowed money to make a return on an investment. Let’s say you bought a house using all of your cash for $100,000. If the property were to increase in value 10% over 12 months, it would now be worth $110,000. Your return on investment would 10% annually (of course, you would actually net less, since you would incur costs in selling the property).

If you purchased a property using $10,000 of your own cash and $90,000 in borrowed money, a 10% increase in value would still result in $10,000 of increased equity, but your return on cash is 100% ($10,000 investment yielding $20,000 in equity). Of course, the borrowed money isn’t free; you would have to incur loan costs and interest payments in borrowing money. However, you could also rent the property in the meantime, which would offset the interest expense of the loan.

Taking leverage a step further, you could purchase ten properties with 10% down and 90% financing. If you could rent these properties for breakeven cash flow, you would have a very large nest egg in 20 years when the properties are paid off. Balance that with what you could make by investing the cash flow on one free and clear property for 20 years. And, of course, look at the potential risk of negative cash flow from repairs and vacancies on ten properties. Finally, consider the tax implications – if you have cash flow, you have taxable income; if you have increase in equity, there’s no tax until you sell.

Cash Flow vs. Cash Reserve

On a similar note, the size of your down payment will affect your cash flow on rental properties. Let’s consider two examples.

Example 1: $100,000 property with $20,000 down. $80,000 loan @ 6% interest, including taxes and insurance is about $600/month. Assuming you could rent the property for $800/month, you have $200/month cash flow or $2,400/year. Not bad.

Example 2: $100,000 with no money down. $100,000 loan @ 8% (higher rate is generally common for zero-down loans) would make your payments closer to $900/month. With zero down, you have $100/month negative cash flow.

Which is better? Well, it depends on what your goals are and what the rest of your financial picture looks like. Let’s say your goal was to hold the property for 10 years. In the first example, you have $200/month cash flow, but no cash reserve. In the second example, you would have $100/month negative cash flow, but you have $20,000 in reserve. The knee-jerk reaction of some people is that example #1 is safer. But is it really?

Think about it… in the first example, if your property becomes vacant for one month, you’d be out of pocket $600. It would take three months to make that up. In the second example, you have $20,000 in cash cushion to make up the deficit. With $20,000 in the bank, you could handle $1200/year negative cash flow for 16 years. If the property were in an appreciating market, you’d come out fine, even with negative cash flow. Another factor is the choice of loan. You could buy a property with nothing down and an interest-only loan fixed at 5% for three years. If your exit strategy is a lease/option that should cash you out within 36 months, why do a fixed-rate loan?

The point here is that you should not automatically go with a fixed-rate loan. Nor should you seek positive cash flow as the only goal. Likewise, you should not buy properties with nothing down and negative cash flow and assume that short-term market appreciation will be the only source of your profit.

Paying Down Debt

For years, our parent’s generation discouraged debt as a “bad” thing. For some investors, the goal is to own properties “free and clear,” that is, with no mortgage debt. While this is a worthy goal, it does not always make financial sense. If you have free and clear properties, you will make certain amount of cash flow and pay a certain amount of income tax. If you need more cash, you are forced to sell the asset, creating a taxable gain.

If you refinance a property, there’s no taxable event. And, since mortgage interest is a deductible expense, the investor does better tax wise by saving his cash. Think about it… the higher the monthly mortgage payment, the less cash flow, the less taxable income each year. While positive cash flow is desirable, it does not necessarily mean that a property is more profitable because it has more cash flow. More equity will obviously increase monthly cash flow, but it is not always the best use of your money. On the other hand, paying down debt may make sense if you can’t get a higher return elsewhere in the market. Also, if paying down debt can have other rewards, such as bringing a loan below 80% LTV, you may be able to cancel private mortgage insurance and save additional money.

In Short, Don’t Rely on Assumptions… Do the Math!

Mortgage Scams Are On The Rise! Watch Before It’s Too Late!!

Closing on a new home can be one of your most memorable life moments. It’s the final and one of the most critical stages in the home-buying journey, but with the exchange of key paperwork and a sizable down payment, it can also be a stressful experience, especially for first-time homebuyers.

The FBI has reported that scammers are increasingly taking advantage of homebuyers during the closing process. Through a sophisticated phishing scam, they attempt to divert your closing costs and down payment into a fraudulent account by confirming or suggesting last-minute changes to your wiring instructions. In fact, reports of these attempts have risen 1,100 percent between 2015 and 2017, and in 2017 alone, there was an estimated loss of nearly $1 billion in real estate transaction costs.

While it’s easy to think you may not fall for this kind of scam, these schemes are complex and often appear as legitimate conversations with your real estate or settlement agent. The ultimate cost to victims could be the loss of their life savings.

Here’s what you should know and how to avoid it happening to you.

How it works

Scammers are increasingly targeting real estate professionals, seeking to comprise their email in order to monitor email correspondences with clients and identify upcoming real estate transactions. During the closing process, scammers send spoofed emails to homebuyers – posing as the real estate agent, settlement agent, legal representative or another trusted individuals – with false instructions for wiring closing funds.

How to avoid a mortgage phishing scam

  • Identify two trusted individuals to confirm the closing process and payment instructions. Ahead of your mortgage closing, discuss in person, or by phone, the closing process and money transfer protocols with these trusted individuals (realtor, settlement agent, etc.). Be cautious about exchanging any details about your closing over email. You may want to use this opportunity to also create a code phrase, known only by these trusted parties, if you need a secure way to confirm their identities in the future.
  • Write down their names and contact information. Use the Bureau’s Mortgage Closing Checklist to list these individuals and their primary phone numbers.
  • Before wiring money, always confirm instructions with your trusted representatives. Never follow instructions contained in an email. Verify the closing instructions, including the account name and number, with your trusted representatives either in person or by using the phone number you previously agreed to.
  • Avoid using phone numbers or links in an email. Again, scammers can closely replicate the email address, phone number and format of an exchange from your agents. Avoid clicking on any links or downloading attachments without first confirming with your trusted representatives.
  • Do NOT email financial information. Email is never a secure way to send financial information.
  • Be mindful of phone conversations. It may be difficult to identify whether a phone call is fraudulent or legitimate. Scammers may call and ask you to verify your personal or financial information. When in doubt, always refer back to your trusted professionals to confirm whether it’s legitimate.

What to do if it happens to you

  • Contact your bank or wire-transfer company immediately. Ask for a wire recall. Reporting the error as soon as possible can increase the likelihood that you’ll be able to recover your money.
  • File a complaint with the FBI. Contact the FBI’s Internet Crime Complaint Center at www.ic3.gov .

While it can be easy to think you’ll never fall for a scam of this nature, the reality is that it’s becoming more and more common, and the results can be disastrous for eager homeowners. By being mindful and taking a few important steps ahead of your closing, you can protect yourself and your loved ones.

To learn more about the closing process, including how to prepare for your closing and common pitfalls to avoid, check out our Mortgage Closing Checklist . For information and resources for the each stage of the home-buying journey, visit the Bureau’s Buying a House tool.

Here Is What A Presidential Election Means For Home Sales And Prices

Campaign ads are already airing. Debates and town halls are being held. Democratic primaries and caucuses are underway. Some eight months away from voting day, the 2020 election cycle is ramping up. However, while some presidential hopefuls are laying out their housing policies, the impact of the electoral process on residential real estate is yet to fully unfold.

Across the nation, the market still seems set on its normal trajectory. In January, nationwide inventory continued to decline, while median listing price climbed to nearly $300,000. According to realtor.com, last month marked a re-acceleration in price gains, as an increasing number of cities posted yearly growth of over 10%.

Still, research and industry experts agree that the closer the election gets, the more likely its effects on housing, regardless of who the candidates are. In general, presidential races breed uncertainty in the housing market, which alters attitudes among home shoppers, sellers and investors and, thus, sways sale volumes and values.

“Why [presidential elections] affects the market more than any other elections is simply because people fear change,” says Matt Laricy, managing broker of The Matt Laricy Group in Chicago. “Whenever people get nervous, they don’t make rational decisions. They make emotional decisions.”

On a large scale, though, that behavior tends to mature with the progression of the election year and intensifies in the second half of that year.

How predictable the outcome of a presidential election appears to be can also influence real estate sentiments. When an incumbent arises as a likely winner, cementing the continuation of familiar policies, the housing market may experience less jitters, said Arlene Reed, a real estate agent with Warburg Realty in New York City.

When the election result evades easy forecasts, “people get a little tentative,” Reed says. “There’s some uncertainty how the new president’s policies will affect the economy, the stock market, taxes.”

Sales slide down, but prices may not budge

In a recent study that analyzed the last 13 presidential election years, which stretch back to the 1980s, Meyers Research, a housing consultancy firm, found out that new home sales record a drop in median sale activity of 15% from October to November, when the nation chooses its president. In the year following the election, the traditional seasonal decline in the sales of new construction abodes is only 8%.

Appraiser Jonathan Miller, owner of Miller Samuel, made a similar observation for Manhattan’s co-op sales in a data crunch he originally conducted for the real estate publication The Real Deal. Between 2008 and 2019, co-op sales began to dip in July of federal election years (both midterms and presidential elections), leading to a nearly 13% weaker market in September.

“Even though the election is at federal level and we’re looking at the local market, it’s still very visceral to consumers,” Miller says.

In most markets, though, the rebound is quick, if not instantaneous as pent-up demand gushes out after clarity dawns in the Oval Office.

“In December [following an election], and in the following year, the sales that are lost during November are recovered,” says Ali Wolf, director of economic research for Meyers Research. “It isn’t that consumers say, ‘I’m nervous, and I never want to buy.’ They say, ‘I’m nervous. Let’s just wait to see how things play out.’”

The impact of presidential elections on prices seems less clear-cut. Because any fluctuation in sale volumes occurs for only a limited number of months, prices may not have enough time to reflect that change. In New York City, Miller says, “it really takes anywhere from one to two years in sales pattern to have a permanent change or a significant change in price direction.”

This year, Daryl Fairweather, chief economist at online brokerage Redfin, says prices may not budge much, buoyed by a consistently tight inventory. Fairweather said that “prices are pretty stable.”

Lawrence Yun, chief economist at the National Association of Realtors and fellow Forbes.com contributor, echos that assertion, saying that he “hope[s] the price increase in 2020 is more moderate at 3% or 4%,” compared to past years.

If prices do post smaller gains in 2020, however, the presidential election might be one factor for that. In 2012, analyzing data by the California Association of Realtors, Movoto, a real estate technology company, concluded that in presidential election years price appreciation falls about 1.5% behind the gains made in the year preceding and the one following the vote.

Potential winners and losers

The effects of presidential elections on residential real estate usually reverberate louder in the upper echelons of the market. Yun says, “Upper-income people will probably wait until after the election compared to more middle-class, everyday people just because any changes to a new tax law or new regulations could have a bigger impact for them.”

During a presidential election, many foreigners also choose to postpone purchasing property in the U.S. as the rules that govern the tax and residency implications of such an action could change with the arrival of a new administration. Laricy says he has several international clients who have already decided to wait out the outcome of the November vote.

However, with today’s favorable economic outlook when it comes to mortgage rates, unemployment and consumer confidence, the upcoming presidential election might do little to impede first-time buyers or those shopping for lower-to-median values homes.

“They’re really more concerned about, ‘Do I have a job? Is the economy going to continue to grow?’” Wolf says. “Who gets elected can impact that but as long as there’s not some wild policy, those groups will generally continue to fare well in an election year or not.”

Position Realty
Office: 480-213-5251

If You Have the Option of Putting More Money Down, Should You?

With the exception of the VA and USDA programs, along with certain down payment assistance programs, most every residential loan program does indeed require some sort of a down payment. Many borrowers want to come to the closing table with as little cash as possible and as the down payment amount is the largest chunk of change needed, the lowest down payment is often the request. A conventional loan can ask for a down payment of just 5.0 percent with certain first time buyers loans asking for a 3.0 percent down payment. FHA loans need a minimum down payment of just 3.5 percent of the sales price. But if you have more money to put into the transaction, should you?

Many times, this additional cash comes from the sale of a previous residence but of course it doesn’t have to. While conventional loans do have low down payment options, with a down payment of less than 20 percent of the sales price, private mortgage insurance will be required. Making a down payment of 20 percent or more eliminates the need for PMI. A larger down payment obviously results in a lower monthly payment which is another factor to consider.

Making a large down payment will also affect liquidity. A down payment is instant equity in a real estate transaction, the only way to get the money back is either through the sale of the property or an equity loan of some sort. Putting more money down often means tapping into a retirement account such as an IRA or pulling funds from any investment or savings account. When those funds are removed, interest is lost. A larger than required down payment could also mean the funds would be put to use in a better way such as paying down consumer debt or paying off student loans, for example.

Considering an existing mortgage, loan programs today allow you to pay the loan down. Perhaps retirement is soon coming into the picture and paying down a mortgage is a solid financial plan. One thing to note however is that with a loan carrying a fixed interest rate, the payment will not change, just the loan amount will be lowered. With an adjustable rate loan however, the monthly payments will change as the loan amounts are reduced.

Coming in with a large down payment is a personal financial decision and for most that means it’s time for a talk with a financial planner and your loan officer. There are multiple considerations when paying extra on a mortgage or coming to the settlement table with a larger-then-required down payment which means seeking advice from a professional.

Position Realty
Office: 480-213-5251

Scary Issues That Can Kill Your New Home Joy

Be afraid. Be very afraid. That new home you’re thinking of buying might not be as perfect as you think. Danger lurks behind every wall. Or maybe just one. Either way, it’s probably something you should know about.

Buying a home is full of challenges, and the one that might be the most frustrating of all is finding out there’s something wrong after you’ve already closed escrow. In many cases, you may have recourse against the seller if there is an issue that wasn’t disclosed, or against the home inspector if he or she missed something serious. But even recompense, you’re still left with a problem you have to deal with when all you want is to be enjoying your new home.

Here are eight things to look for before signing on the dotted line.

It smells moist
If you tour a home on a rainy day, don’t automatically think that the moist smell is because of the weather. If it smells moist inside, you’ll definitely want to make a return trip when the rain has passed to make sure there’s no moisture issue in the house.

There’s a telltale pet odor
That could mean damage to carpet or floors. It might be something you can work out while negotiating, but you definitely want to be aware of what you’re dealing with so that there are no surprises later on, like pet urine that has seeped down through the wood floors into your sub floor, costing you thousands.

The neighborhood is iffy
Maybe there’s more crime than you’re comfortable with or too much of a commercial presence. It’s all about what’s acceptable to you.

Neighbors’ homes are unkempt
If you’re not looking in an area that has a homeowners’ association, pay special attention to what the neighbors’ homes look like. If you’re seeing curious paint choices, cars on the lawn, and grass that’s waist-high, you might want to think hard about whether this is the neighborhood for you. Some buyers appreciate the character of a neighborhood but doesn’t have the strict rules governing what they can and can’t do. But a neighborhood without an HOA can also have issues when neighbors don’t take care of their homes, and this can affect your property values.

It took you a long time to get there
Have a serious conversation with yourself about how much is too much when it comes to the commute. If it took you an hour and a half to get there from work, is this something you can live with every day?

It’s dirty
There are times when a home goes in the market and it’s clear the seller didn’t make the effort to get it in shape prior to listing. It’s not just about a lack of updates but a lack of upkeep, as well. While you may not know the circumstances behind the home, and while it may seem like a great deal if you can get it for a good price, be cautious. A home that is in bad shape on the surface may have a bunch of issues you can’t see.

It’s dark in the house
Sellers will typically open up all shades and blinds and turn on all the lights for showings, but nothing is stopping you from flipping those light switches off to see what the natural light situation is really like. If the place is dark even with all the blinds open and lights on and natural light is really important to you, it might not be the house for you.

It’s too perfect
A home that’s really well staged can look super appealing. But buyers have to train themselves to look at the home, not the furniture and furnishings. What will the house look like without that staged furniture? Does the floorplan work for you? Are the pieces scaled for the room or for real families? Are there any curious configurations like a chair blocking access to a fireplace. Getting past the stager’s tricks to see the house for what it is will help you to decide if it’s really for you.

Position Realty
Office: 480-213-5251

New Appraisal Rule: What Does It Mean for You?

A new home appraisal rule just went into effect—the first time in 25 years that “federal regulators have increased the property value limit of the homes that require an appraisal as part of the selling process,” said REALTOR® Magazine. The rule exempts some home sales priced at $400,000 and below from requiring an appraisal. That figure was previously capped at $250,000. “The new rules likely apply to about 40% of home sales, regulators estimate.”

So how will this affect home buyers and sellers? First, it should be noted that those homes that do receive the exemption still have to be evaluated “to provide an estimate of the market value of real estate collateral,” said Housingwire. “The agencies state that the evaluation must be ‘consistent with safe and sound banking practices.’ To that point, the rule establishes that an evaluation “should contain sufficient information and analysis to support the regulated institution’s decision to engage in the transaction.”

Also, the new exemption is not applicable for homes using FHA, HUD, VA, Fannie Mae, or Freddie Mac financing, which eliminates a huge percentage of homes right off the top.

If you are in a position to buy or sell a home that no longer needs an appraisal, should you still proceed with one? Here’s why you may want to consider it.

What is an appraisal?
“A home appraisal is an unbiased determination of the fair market value of the home by a professionally-trained third party,” said Forbes. “While that may sound complicated, all it means is that it’s a chance for someone who’s not personally involved in the sale of the home to give a true representation of the home’s worth. It’s worth noting that an appraisal is entirely separate from a home inspection. The former deals with the financial value of your new home. The latter is an inspection of the functional quality of your home’s systems, like HVAC and plumbing.”

There are a number of factors that contribute to that fair market value. “In a purchase-and-sale transaction, an appraisal is used to determine whether the home’s contract price is appropriate given the home’s condition, location, and features,” said Investopedia. While the evaluation process is intended to provide guidance when it comes to pricing, it is unknown at this point how those evaluations will compare to appraisals, if they will carry the same weight in terms of establishing home value, if they will disproportionately favor the lender, etc.

Value protection
Buyers and sellers each have a vested interest (literally) in knowing how much the home they are buying or selling is worth. For sellers, an appraisal can help inform the listing price, and may also be able to help a seller justify a higher listing price because of improvements they have made to the home.

On the other hand, if a home appraises for less than the sales price, buyers have a negotiating tool. “An appraisal is important because it protects your investment,” said Forbes. “It’s there to ensure that, as the buyer, you don’t pay more than the home is actually worth. It’s also important for securing financing. In today’s mortgage industry a bank will only give you a loan up to the fair market value of the home. Therefore, if an appraisal comes back lower than the purchase price, the lender may only issue you a loan for the appraised amount.”

Position Realty
Office: 480-213-5251

Understanding the Hidden Fees and Costs of Selling Your Home

Your home is likely the largest and most lucrative investment you’ll ever make. But as the saying goes, it takes money to make money. Maximizing the value of your investment is going to require putting some sweat equity, as well as literal cash equity, into it before it hits the market.

On top of that, there’s an avalanche of transaction costs, surcharges, fees, and various taxes that can take home sellers by surprise. In fact, the average cost of selling a home is just over $15,000. Knowing what to expect before you actually start the home selling process can be the difference between a satisfying, stress-free selling experience, and what can feel like a frustrating, draining “death by a thousand cuts.”

Let’s go over some of the obvious and less obvious costs of selling your home.

Expected Costs of Selling a Home
Realtor Commission
The first thing that most people think of when they hear the phrase “costs of selling your home” is the real estate commission. Traditionally, a real estate commission comes to 6% of the final sale price. How much is that in practical terms? The median home value in the U.S, according to Zillow, is $229,000. If you sold a home at that price, the commission would come to $13,740, which is no small amount of money.

So where does it go, and what does the seller get for that 6% payout? Generally, the listing agent and the buyer’s agent split the commission, with each of them taking home 3%. The idea behind the commission is that, by pegging your agent’s compensation to the final sale price of the house, you’re incentivizing them to get the highest price possible. The more you make, they more they make.

Does it work? In general, yes. Agent-assisted sales consistently sell faster, and for more money, that non-agent-assisted sales. According to an analysis by NAR, the median value of agent-assisted home sales is $250,000, while the median value of FSBO (for sale by owner) listings is only $190,000. The real estate commission is one of the biggest costs of selling your home, but it also brings some of the highest value.

Closing Costs
Closing costs is a catchall term that includes many smaller costs, from the owner’s title insurance fee, to half of the escrow fee (the seller splits it with the buyer), to prorated utility costs, document preparation fees, transfer taxes, and prorated property taxes.

How much are they? It’s hard to say, since they can vary from state to state and even from city to city. But generally, sellers pay 1% to 2% of a home’s sale price in closing costs.

Moving Expenses
It can be tempting to think you’ll just pack all your stuff into boxes you’ll get for free from the grocery store, and drive it over to the new house in your car. But when you’re in the middle of actually selling your home, you’ll probably find that you simply don’t have the bandwidth to deal with moving yourself.

Your options when hiring movers range from a single truck, to a full-service interstate shipping company. Depending on what level of services you opt for, you can expect to pay between a few hundred dollars and several thousand.

Hidden Fees and Costs
Let’s be honest; few sellers are likely to be taken by surprise by a real estate commission or moving costs. But the expenses listed below are more obscure, which is all the more disturbing when you consider that some of them can potentially dwarf the expenses we’ve already covered.

Renovations and Repairs
You’ve probably spent years living in your home, and as with a favorite old t-shirt or a significant other of several years, you even see its flaws as endearing. This probably won’t be the case with strangers. The scuffed hardwood floors and quirkily painted walls in your house will end up being liabilities when your home hits the open market, and any experienced real estate professional will advise you to renovate before you have that first showing.

How much it costs will depend on whether you just need a fresh coat of paint, or a new roof and refinished floors. But nearly every house will benefit from a refresh, so you can expect to invest several hundred dollars, at least, in pre-sale renovations.

Landscaping
“Curb appeal” refers to the very first impression your home makes on a potential buyer, as they get out of their car or walk up your driveway. And the features that surround your house have as much impact on your home’s curb appeal as the home itself. Just as you wouldn’t show up to a job interview in a new suit, but with uncombed hair and dirty nails, your property should be thoroughly landscaped before it’s listed. That means trimming the lawn, hedges, pruning trees, and even planting flowers.

How much this costs is going to depend on the size of your lawn, and how much maintenance it needs. But make no mistake, a manicured lawn can help a home sale as much as a new kitchen.

Staging
Where landscaping is about the external presentation of your property, staging is all about making the inside of your home as appealing as possible. In this context, staging can include everything from decluttering your shelves to buying a new dining set.

Fundamentally, staging is about showing your home in the best possible light, sometimes literally. You’ll want to allow as much flattering natural light as possible to penetrate into your home, which means removing heavy drapes and window coverings. Visual clutter is distracting and can even cause low levels of anxiety, so you’ll want to take all your family photos and collectible plates, and put them in storage. Worn or shabby furniture can make the rest of your home seem equally threadbare, so you may need to get rid of old furniture, and possibly buy new furniture.

Your agent can advise you on staging, and there are even professional home staging experts who you can hire to prepare your home for open houses. Sellers can expect to spend a few hundred dollars on staging their home or, if they opt for a professional home stager, a fee in the low four figures. The median amount of money spent on staging in 2018 was $400.

Professional Photography
In 2019, the reality is that before a prospective buyer even sets foot in your home, they’ve already looked at photos of it online. That means that including high quality photos with your home listing is of the highest importance. And as anyone with an Instagram account knows, taking a good, flattering photo is much harder than it seems.

The data is unambiguous; listings with high-quality photos sell faster than listings with mediocre photos, and the more photos a listing has, the better. A professional photographer isn’t cheap, but it’s a great investment.

Capital Gains Taxes
If your home sells for more than you bought it for, you may owe capital gains taxes to the federal government. This can be an extremely significant amount of money; a 20% bite out of your profits from capital gains wouldn’t raise an eyebrow in a room full of tax professionals.

But luckily, many home sellers will be able to exclude up to a quarter million dollars of profit (or a half million, for married couples filing jointly) from tax liability. The only conditions on this are that the home has to be have been your primary residence for two out of the previous five years, and you can’t have used the capital gains exemption on another home sale in the previous two years.

Saving When Selling Your Home
Surveying this list, it’s clear that some of these expenses are reducible, while others aren’t, or shouldn’t be.

Anything involving taxes is going to be hard to bring down. Property taxes, title fees, and transfer taxes are generally non-negotiable. There’s an exemption for capital gains taxes, but there are restrictions on how often it can be used. Sellers looking at a large capital gains tax bill could consider delaying their home sale, so they can take advantage of their exemption.

Some expenses, though, can be cut down. Staging, landscaping, and renovations can be done cheaply, especially if you enlist family and friends to help paint, mow, buff, and polish. Even moving can be done cheaply, if you don’t count sweat and time as expenses.

That brings us to the real estate commission. There are certainly low commission agents out there, but sellers should keep in mind that they’re usually getting less services by paying less money. If you save $13,000 by not using an agent, but your home sells for $40,000 less than it would have in an agent-assisted sale, you haven’t actually saved a penny.

However, there are a growing number of companies offering a full service selling experience for a flat fee. (Full disclosure: we’re one of them.) These companies allow sellers to partner with top agents in their markets, and get all the benefits of their expertise at a fraction of the usual price. Why, you might ask, would a top agent sell one house for a flat fee, if they could be making 6% on another house? Well, the agent’s getting high-quality leads from the referral company, which means much less time and effort spent hustling on the front end. It’s a true win-win. Considering that the 6% commission is usually the largest single cost of selling a home, flat-fee real estate companies are probably the best way for home sellers to bring their costs down.

Position Realty
Office: 480-213-5251

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