The reasons in general why they stress people is because it stress tests your finances, you need to make so many decisions, and you are trusting a new team of experts. The reasons why it is enjoyable is because you get to create your dream- one selection at a time!

The process of building a house is easier than renovating, but more complicated than buying an existing house. You need to identify your lot, your builder, your budget and timeline. Some communities have builders who are well financed, or self financed. That means that these builders have enough money on deposit, or a good enough profit margin that they can borrow the money to build the house and still sell it to you for a profit after recouping their “cost of money”.

If your builder does not finance the properties, or it’s a semi custom or full custom home, you will be required to get “construction financing” or pay Cash. Construction financing is done by banks who do traditional financing- Locally, I like to use a group of experienced banks, call me 513-500-7474 to get a list of Lenders. The banks manage the construction “draws” and are another protection for you- the consumer.

There are two contracts that can be used in buying new construction. The two are- lawyer drawn contract that binds the builder and customer together, or a State of Ohio Realtor Board Contract that binds the brokers to their clients and then attaches addendums to the contract. It doesn’t matter which is used, but if the first is used, I would hire a real estate or contract lawyer to review the contract and explain the details and position of the contract. Whoever draws up the contract will be protected more than who is bound by the contract!

Typically, the construction schedule is a 6-8 month schedule and I would always recommend building with a well laid out schedule. Materials can overcome some of mother natures curveballs, but you need to make sure that your specifications match your environmental risks.

For all of your site/ builder identification, negotiations and building representation needs, please contact John Payne at 513-500-7474.

Without doubt this will cause some short term chaos that Buyers and Sellers will need to be ready and sympathetic to. Agents understanding of the milestones will be more critical and the time under contract will overall increase.

TILA-RESPA_August 1 2015

The house was a renovated ranch in an area of renovated ranches. It has two bedrooms upstairs and one legitimate bedroom in the lower level. I call it legitimate because it has an egress window cut into the foundation as means of egress in the case of fire. The yard was amazing and private and it came with a two car garage which was a great bonus in the neighborhood.

The problem with the appraisal on the property is that you needed to go more than 1 mile to get a property that was renovated nicely like this one. Also, you are in an “older” circa 1950’s neighborhood which has many original owners who have either not updated before Selling or haven’t moved- causing a draught of comparables.

The contract was for over $210,000 and the property appraisal came back over $50,000 short! That’s ¾ of what we thought was market value! The buyers and I knew that they were paying “top of the market” for the house, so no one was surprised that they were not getting a ‘deal’, but I wash surprised when we saw the independent third parties value on the property.

You can challenge an appraisal, but you are only going to get a percentage, not bring ¼ of the value back to the property with justified comparables. The Seller is not out anything financially, but more under the pressure of the market to put unjustified value on the property. The point of leverage here is in the Buyers favor as it can be resolved with a price reduction to the appraised value. Also, the Buyer could bring more money to the Closing- so if the appraisal came back at $200,000 and the contract was for $214,000; the Buyer would bring an additional $14,000 (the difference) to the Closing. Not many people can or want to do this financially, not the most viable option.

The Buyers at this point had invested $250 in an appraisal, $450 in home inspections and put money into a loan origination. Fortunate for them, all was refunded except the termite and radon inspection fees with the understanding that all of the “players” would remain the same, but it was a stressful exit from a previous very exciting time!

The message here is that you have a risk if you are Selling and Buying a property that is an “outlier”. Your most conservative position on buying a house is to understand your market ‘exit’ and what price ceilings you have to monitor as you elect to do your renovations.

Even if you didn’t use me to make your purchase, please feel free to call or email with any questions with regards to your homes value or “market position”.

Stories like this make people who don’t own property happy. It should make people who own property nervous. Why?

The economic tool used to allow people with less than 20% down payment to buy a house is called PMI, private mortgage insurance. The insurance policy is property specific and it is in place until the borrower has paid enough principle into the loan- totaling 20%. The goal of this PMI is to fund the premium on an insurance policy that becomes paid to the bank/ note holder if the borrower defaults on a loan that was underwritten within the legal parameters. I make this last comment because during the days of predatory loan companies, PMI was not paid to those companies, instead they got the property back with the ‘note’. The common business practice is to package and sell loan ‘Note’ to a large corporation- ie Fannie Mae or HUD.

While the foreclosures have slowed to a creep, the reduction in the overall cost of this PMI insurance is concerning because it allows people to be highly leveraged once again- putting our housing economy at risk. Owners need equity or ‘skin in the game’!

If you read other articles on the site, you will see that I am a self proclaimed realist and my reality is that my house is currently a tax deduction tool, but otherwise, it looses me money on paper every month because of continued capital improvement projects, time invested maintaining a clean and healthy home.

Making homes more affordable is accomplished by building homes with a longer life cycle cost. If water heaters, furnaces, roofs, garage doors, windows, etc all lasted 40 years, you would have an affordable house. Although the reality is water heaters are listed as 8-12 year life cycles, furnaces 15-20 years, roofs upto 40 on a new well vented dimensional shingle, etc! Even in a new house, you have replacement costs within the first decade of ownership!

I would recommend to Buyers in this buying environment to circumvent the 20% down payment by looking at grant dollars- local, state and national OR waiting until the bank account reflects 20% and the loan payment will allow you to attain your personal financial goals.

I give this reduction in PMI a thumbs down!

Call to Action- if you need help with personal financial goals or want more information on local, state and national grant programs- contact me! John Payne 513-500-7474