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April 6, 2022

Should I Buy A Home Next to Powerlines, or A Railroad, or a Highway?

 

Today's Buyers Ought to Know series is, “Should I buy a house next to power lines?” You’ll probably be surprised at the answer, but not really once we discuss how we sorta get there. It's pretty common in real estate that the house you want is just out of your budget. How do we get the house that you want in your budget? Well, one of the ways that you can do that is  you buy a property that has an impacted location. Now, what's interesting about impacted locations is, there's a ton of them. A lot of people think there's just one type. No!  There's, I mean, I have some listed here, but there's another two dozen that I could probably list that probably are less recognizable about the kinds of impacts that you can have. 

 

The short version is all properties that have an impacted location are going to be impacted with what the market thinks they're worth. And ultimately one of my job's is to try and figure out how much (the impact is)  so that you're not overpaying or not trying to get a discount, that's not going to happen. So, just to review the list, the types of impacted properties could be:  properties that are right next to the power lines. And, of course, I'm not talking about telephone poles, I’m talking about high tension lines, right? Where you look at it and It looks like it's out of a zombie movie right? Like it's just- people don't like looking at ‘em, and, some people worry that they have health effects, although science on that suggests, that's not really a thing. But people believe what they wanna believe, and what they believe is, they don't want to live next to power lines. They pay less for those houses. That's a fact. Okay. So what about railroad properties, if you had a railroad  in your backyard that property is not going to sell for the same (amount). Now, there's a big difference, if it's an old Spur Line that only runs once or twice a week, vs.  the commuter rail, right? So just because it's a railroad property, you can't make assessments about how it's going to …you can't make assumptions about how much it's going to get impacted just because it’s next to a railroad. It depends on the railroad!  There's a difference in how the markets going to look at (each of those). Highway properties are the same kind of thing. They're people that have around here 495 or the Mass Pike in their backyard. This is not uncommon, it happens all the time where people live on 85 or 30, or 20, or any of the other state highways. Some state highways are so big, they're just like interstates. But how close are you to the road? How much is the noise? Is there any kind of noise barrier or visual barrier between you and these locations? All of these things ultimately change what kind of discount you should probably be seeking right? 

 

And steep slopes, and I don't mean like a little sledding grade. I mean, like a deep slope. Like holy cow. Great. There's a ton of these properties with modern technology, you can build a house anywhere! It doesn't have to be on flat ground. Some houses have driveways where they have switchbacks you go up, but then you do what u-turn and then you go back up to another u-turn. I mean, I've seen some crazy stuff but what I know is that house does get the same money asa home with a flat lot. There's just fewer people who are interested in the house, but at some point they get interested in the value that the house provides at a certain price point. So a lot of people say, well, I would never live in a powerline house and house and I say, 

“Well, what if the house was one dollar?”

 “Oh, well then I would do it.” 

 You know, we all have a number where it works, right? And so, the market has a number for where it starts to make sense to more people than it stops, that it doesn't make sense to. I mean, that's what it's about. There are lots of neighborhood properties that have almost no backyard, either again because of steep slope. Sometimes there's Wetlands back there. You literally have like 5 or 10 feet of a backyard. The lot can be bigger, but what you own is not usable in any way, shape, or form. So functionally, you have no backyard, Tthat impacts the property, the price of the property. 

 

If you're in a neighborhood, it's a significant discount. And then there's another one on here that I have just called abutting a zoning change. So if you're in a residential area, when you're right next to a commercial area that tends to affect the price that you can get. There's all sorts of “right next to a commercial area”. Sometimes you can't even tell that the zoning line is there. Sometimes you can tell!  Right? Like here next to it, there’s a trucking depot, the trucks are all outside and it looks - not so great. That's going to have an impact.  The greater the visual impact between your property and the property next door,  the less it feels -Wonderful - The more of a discount you're going to get there. That's just how it is. But no matter the impact,  ultimately you have to ask yourself two questions. The first is, does this bother me? Most of the people that end up buying impacted properties, the impact doesn't bother them very much if at all. So most people that buy a house next door, Highway will tell you honestly, it was never as bad as we thought it was going to be, but at the time, they bought the property, they were very worried about it. The good news is most of the time these impacts are much bigger, at purchase time. Then they are actually having to deal with it. I mean, that's  good news if you're like, worried about it, right? But at the end of the day, you still have to be careful price wise because at purchase time, not just when you purchase but when someone else purchases it later, there's going to be a price impact. I mean if you’re there  long enough I guess it doesn’t matter a ton,, but for a lot of these properties, it's not uncommon to see them sell at a 20% discount. So it's a six hundred thousand dollar property and you end up paying 10% more than you should that sixty thousand dollars. I don't know. Maybe you don't need sixty thousand dollars. Most of the people I talk to,  they need sixty thousand dollars. If you could Venmo them sixty thousand dollars, they would be really, really happy. They need the money. That tends to be people that I work with. So you don't want to overpay by 10%. Just because it's 10% cheaper, a 10% cheaper, doesn't make it a good deal if it's a significantly impacted property. 

 

That's ultimately the message that I want to get here. Now, a lot of impacts are not 20 percenters. But some of them are. Sometimes  it could be more but most of the time around 20%, you know, is where you start finding buyers for those items.  But I will tell you, you need to be aware that if you buy a severely impacted property, there's some markets where I'm not going to recommend that you sell it. I’m going to see if you can hold on (wait for a better market).  It's been a long time since there's been a bad market, but you know when the markets bad, these properties, you have to really fire sale them in order to get out from under them. That's not a situation that you want to do. You do need to know that if it's a serious impact, that you're taking on some level of not being able to sell property, whenever you want.

 

 If you buy a house with great lot inside of a neighborhood, I don't care how bad the market is, you’ll always be able to sell that house. Can you get what you want for it? No. (Not in a bad market), but you’re going to be able to sell it - that’s the beauty of the “safer” properties.

 

A Lot of times, you can split it. You don’t need a property that is 100% safe. It can be a slight impact, you can still be able to sell property. You'll still be able to get a really good return. So, I know, one of the things people worry about, “if I buy a house next to power lines, I'll never get my money back”. Yes, you will!  And if you want I'll show it to you. I'll show you when the person bought the property, and then we'll look it will be ten years later, and they make just as much money as everyone else - as long as, they paid the right price at time of purchase! 

 

Okay, so the key here is not to necessarily try to find the perfect property or avoid properties with impacts. A lot of times, they can be beneficial to you. Because, you know, if you, if you're doing this right, you don't care about the specific impact because some people are like, “ I don't care about a backyard, I don’t want to mow it,”.  Great. Let's go find that property. You're going to be able to get more house that you want, at a lower price. That’s a win!  And then you don’t have to mow the lawn!  Not everybody needs to spend all day Saturday mowing the lawn, some people just don’t want to do it.  

Buy a house where you don’t need to do it.  And then you win, win. 

 

 

This can be a good strategy. Should you buy a house that’s next to powerlines? I'm going to sum up here, I'm going to do it. Should you buy a house is next to a railroad? Should you buy houses next to a highway? Yes, if it doesn't bother you and you're getting the discount that you need to get. That is the reason you should do it. You should never do it. If you can't live with the impact. Don’t do it.  Go find something else, it’s easy to do, there’s plenty of houses. 

 

 

And understand that if you can't deal with any impacts, you're going to get less house. That's just how it goes. But there are lots of different ways that you can make this work for you and your budget. You just need to be aware how the system works. So have a good one. I hope this got some answers for you. If you're looking for more detailed answers about a specific property. You guys know where you can find me. Thanks a lot, bye.

April 1, 2022

Buying a Home in an Ultra Tight Market when Selling a Home too!

 

 

As part of my  seller’s ought to know series, we’re going to talk about how to buy in an ultra tight market. Even though interest rates are going up, the market remains ultra tight and it's ultra tight, because there's just not enough inventory. Having said that, we've been doing this for a while, and there are definitely some strategies that you can do that are going to be successful. They’ve been successful for other people and you can do ‘em too. 

 

Honestly in every market buying and selling is a challenge and it's not an easy thing to do, but if you want to move…   It can be done! There are definitely three popular strategies, and there are some other sub-versions of these as well. You can sell your home with a home finding contingency. Right? So, basically, that's a situation where you put an offer together (on your house), but it says that you have a certain amount of time to find the next house. That's a good option. You can sell with a bridge loan. Okay. What that means is you find the house that you want and then you have a mortgage set up so that you can already purchase that house without having to have your house sold or  under agreement. This tends to work really well if you're moving long distances or, you know, you've got to get out of the old house before you can get in there and fix it up, and do other stuff. So, the bridge loan is definitely a good way to do it as it reduces the timeline dependency of being able of needing to sell one before the other. 

 

Another one is simply just to be ready to sell. Don't be sort of ready to sell, be completely ready to sell, have your house all packed up, you know, have your listing contract all set have the pictures already taken of your house. Literally be ready to put your house on the market tomorrow, right? And then be aggressive out there writing offers. But with these strategies, none of them are an obvious slam-dunk strategy. It really depends on your situation, and what you're trying to achieve.  A home finding contingency in this market is going to be unpopular with interest rates going up. There aren't a lot of buyers who are going to want to give you a very long time to go look for a house. Generally, they don't want to give you a long time, anyway, so you need to be understanding that if you're going to give (the buyer’s right to pick the date) up. It's probably going to affect the price that you get on your house.  Maybe in this market, not so much, but it's definitely something that is material for most buyers and could effect what you end up getting for your house.

 

 Bridge loans have additional costs!  Honestly with the prices that properties are going for,  I think, bridge loan pricing is very attractive right now. And it's definitely something that I think most people should consider. The downside is not everyone qualifies, you know, if you take the expensive piece out of it, a lot of people don't necessarily qualify for it because you do -  the bank does look a lot closer at your financials to make sure you carry the house for three to six months. 

 

The third option - writing offers without knowing exactly what you're going to get for your house. It's very nerve-racking. Ultimately bridge loans and, you know, just being ready to sell, you really need to have a good understanding of pricing for your house. Some houses are easy to price, and some houses are not. In this market, the good news is, most people end up getting more than they expect. And at some point that will stop, but for the moment that has definitely been the case. That has made the move, definitely worth it. 

 

 

Are they paying more when they buy?  Yes, they are, but they're getting it back when they sell or most of it and sometimes more than most of it. So those have been good things to do. But with any of these strategies doing them, for the first time can feel uncomfortable. I know that a lot of my customers, you know, worry about it. At  the end of the day, there aren't any risk free strategies in a tight market, right? I mean, at the end of the day, you can solve most of these problems with money, but the risk of money is a real thing. Not everyone has a lot of money sloshing around. So, you know, you have to take on some risk to kind of make it work, but you can be successful like haven't gone down these roads more than a few times. You know, I can show you sort of where the signposts are and the kinds of things you should be thinking about, in order to determine which strategy is right for you!  And again, as I said, in the opening and even normal markets buying and selling is not not easy. We have lots of practice helping people do it. Helping people get the timing down and making sure that they're ready to go from house “A”  house “B”. It can be done. It's a little tougher in this market, but it's certainly not impossible and really shouldn’t  be something that prevents people from moving forward. Having someone who understands the strategies, where they go wrong, how they don't work. And then making sure that the paperwork that we put in place in order to protect you, so you can execute these strategies is a key part of what we do. If this is something that you'd like to know more about,  absolutely reach out to me, I’d be happy to discuss your situation in detail, and figure out which one of these situations is right for you or where something else is the right strategy for you. Thanks. Have a great day.

March 23, 2022

Buying Foreclosures in Today's Market

Quick Overview to Explain How Foreclosure (REO's) Are bought and sold TODAY

 

Hey everybody. I appreciate you clicking on this video. And I know you're here because you want a deal on a foreclosure. I've got some good news and some bad news on that front. But if you want an overview of foreclosures, this is a great place to start. So I'd like to tell you I have lots more information than this quick video. So if you are still interested in pursuing foreclosures, make sure you reach out to me. Tere's a lot to go over really just trying to keep these overviews to like, five minutes. And, you know, this is a really complicated process. It's changed a lot. 

 

At the end of the day, it's just an overview. If you need more info, let me know. Most people, most of the buyers that I talked to, even a lot of the investors, they're still convinced that foreclosures happen the way they did, you know, a long time ago. So back when I started, which was a long time ago and in the old days, you know, the banks would post notices in the paper, which they still have to do. (It's required by law) Then they would do an auction out on the street and whoever showed up could get a deal and it was very difficult to get to the properties. This way, it sort of limited what you could do geographically.  And because of that only a few people showed up and you know, the banks had certain processes in place so that they could sell them as many times as they wanted and build lists (of buyers) and the whole thing. But at the end of the day, it was a fairly profitable enterprise. Especially if you were pretty good at figuring out what these properties were worth. 

 

Even if they weren't sold out on the street, if it was a local bank, a lot of times you can walk into the local bank and find the people who are dealing with distressed property at the bank and talk to them and, you know, tell them your story and maybe get a deal. So the problem with all of that is because there was sort of this inelegant system to do it, There were lots of opportunities for bank and mortgage fraud. Although it didn’t happen with every foreclosure it happened with enough of them where the banks were very eager to do something else. So they have! It's their responsibility to do something else. 

 

Today things have changed. The first is that for a bank to actually take possession, takes a very long time, most banks will try to do anything to avoid, having to foreclose on a property that includes doing a short sale and lots of other things because it just takes forever to (fore)close. And basically, they aren’t getting paid the whole time that they're taking possession. It's not a good deal for the banks that way, but when they finally do take possession eventually, they get around to listing. And again  I've seen this take years, you know, they take possession of a certain date, that six months later, eight months later. It finally comes up for sale. I don't know why it takes so long. I can't tell you. I just know that it does. When they do list it though, the process is pretty much the same today. They figure out what the market value probably is, and then, they list it substantially below the market value. Now, why would they do that? Well, they do it, so they can get multiple offers. Okay, and this is all part of the fraud prevention that they're trying to do. So if you only get two offers on the property, it might be easy for, you know, the real estate agent who's ever handling, the REO to steer the bank towards one offer, which may not may or may not be the best offer, maybe the offer might be from someone that the agent knows. But if you have fifteen offers, well, it's a little bit easier to figure out what the market value of the property is. Today they list them low, and then they collect offers and so you can run out there and see him all you want. But basically the bank is going to sit there until they get a bunch of offers. Now in a super hot market, this happens pretty quick. You still gotta hustle out there, but most of the time, in a normal market, the more beat up properties, the higher-risk properties, they can sit out there for a while,while the bank sits there and collects offers and figures out what the best thing is to do. It's not uncommon for this process to take a while. If you're writing offers on foreclosures, don't write an offer on a Friday, expect an answer on the Saturday. It's not usually what happens. First of all, nobody’s working at the bank on Saturday or Sunday. Best cases, you're going to hear on Monday, but, you know, like I said, it can really take a while and you sort of need to know the banks move at their own speed. 

 

Most of the offers for foreclosed property are actually collected through auction websites and there's a bunch of them out there. You can go crazy going out there and looking at those websites, but it can be very frustrating because some of those websites, in order to write an offer, basically you fill out five or six fields and then you submit the offer. So the problem with that is because, it's not even a signed contract. It's just it's just me bidding on a property. So there's a bunch of problems with that. The first problem is that if they're showing you what the last bid was, you don't know if the last bit was serious. The bank doesn't know either. Right? Like, I mean, they treat all the bits the same, but some of these auction websites will show you what the last bid was. And I believe someone typed in those numbers, but a lot of times those numbers are not real and when the auction ends, they go to the buyer that put in the number and they say, “Hey you won! Now you have to give us money!” and the buyer goes. Oh, wait a minute. I haven't really looked at the property and so then they either look at the property or Bank, says listen, if you're not serious, you know, we're just going to go down the list and go to the next person. Very often what happens is the buyer that ‘won’ realizes that if he buys the property is going to ‘lose’ and the property comes back on the market. We see this happen all the time. So some properties, you know, it'll go under agreement and then it'll come back up. It'll be a new round of bidding that will go under agreement, that will come back up under agreement, come back up, three, four, times. It's not weird and it's all because there are a certain number of buyers out there that are happy to put a price on there that doesn't make any sense (once they research it). And then once they get more information about a property, they immediately run away from the property as fast as they can. I's just something that you need to be prepared for because of the system. So some of the auction websites require more formal offers and you tend to see less of the bouncing, but every situation is different. And there's not a ton of foreclosures. So it really is sort of, you know, every situation is different! 

 

At the end of the day, the bank is collecting all these offers to reduce the possibility of fraud. It's just impossible and practice to get them to hurry up or take your offer first. It's not, they're not, this is by design the banks have no interest in taking your offer first. If they do, they're going to be worried that there's fraud going on. They want 12 other offers, you know, or whatever their number is, before they make a decision and they want to make sure that the offers are consistent from a market perspective as to what it is that they should get. 

 

The offers are evaluated in a typical fashion, which means that they're looking not just at the price but they're looking at the financing too. So if you're a high LTV buyer, then you're at a disadvantage. You’re going to have to pay more than someone comes in and offers cash. A lot more! And sometimes paying more isn’t going to help at all. So if you pay five thousand dollars more as an FHA buyer, and they can take someone who's going to pay cash and no mortgage contingency for five thousand dollars less - You're not going to win that. That's the bank's going to take the cash every time, they're going to close in 30 days. It's what they're going to do. On top of that, a lot of foreclosures, especially the ones that are a good deal, can’t be purchased with high LTV loans. You know, you can't -  if it needs a new roof immediately, if the roof is already leaking and you try to buy a foreclosure with an FHA loan.. I have to tell you, it’s not  going to happen. The bank is aware it's not going to happen, and they're not going to choose your offer because they know that you're financing isn't going to get past the appraiser when it comes time to to perform. They're going to have to put the house back on the market which they don't want to do. So, they tend to favor offers where, where the financing is more secure, even if the price is a bit lower. They're very rational about this again, you know, once all those offers go in, I'm pretty sure they don't even look at the names, they don't care. They're just looking at the numbers and that's how they make decisions. 

 

Foreclosures and value. No matter - all the time I've been doing this, it's a persistent urban myth and foreclosures are good values and easy ways to make money in real estate. I'm sorry. It's not true. It's not true. It's especially not true because banks are not here to give you a discount. I think we all know at this time, that banks are very good at looking out for themselves. When they own a piece of property, they are no different! Now, they don't want to do any work on the property. So if it's cosmetically challenged or it has physical flaws, things that need to be fixed - things that increase the risk profile of the property. Well, that intends to sell for what looks like a lower price, right? Relative to what other similar kinds of property sell for, but that's how it works when the property needs updating or needs to be fixed. The price goes down. And so I in here  a simple, you know, valuation metric formula for how you can figure out the price of the property. Okay?  The current value of the property is the maximum intrinsic value. So if everything was perfect, okay, for that house and that location has a maximum value. Okay minus the risk, right? So let's take an easy one: It’s a  perfect house, perfect, lot. And it's worth 500. That's its max intrinsic value. And it has a failed septic system which is going to cost thirty five thousand dollars to fix. Well, it's probably going to take 60 thousand dollars off the price right? Because people don't do dollar for dollar for risk!  They usually one and a half dollars or two dollars for every dollar of risk that they take on. So you're going to take 60 thousand dollars off the five hundred thousand dollars and someone will probably be willing to pay, you know, 440K for that house and then replace the septic system. So again, this is a situation where if you have an FHA loan, can you offer 460 and buy the house? You cannot! Failed septic system means you'll never get past FHA. Right? So if you have the cash to buy the house of 440, but no money to put a septic system in,  will a bank let you buy the property? Sure, but then you're going to be in a world of hurt. You're not gonna be able to live there. It's got a failed septic system, and the town isn’t going to let you live there. You're going to have to replace that system. You're gonna have to figure out where to get the money from, you know, maybe you can still borrow it from the house. I guess, if you pay cash, you could probably do that. 

 

Bottom line is, a lot of these properties need things fixed and they need them fixed immediately and you need to have the cash on hand to do that. And you need to know that you're going to have an opportunity to estimate what it's going to cost. But the bank is not going to let you go out there and do a septic design to figure out how much the septic system is going to cost. You're going to have to guess! And if it's a sixty thousand dollar septic system. Your profit is gone. I mean, that's just how it works, sophisticated investors, understand this, okay, that they are going to take a chance and hope that the numbers come out, where they should in order, so they can make money. But a lot of times, you know, inexperienced buyers are not aware of how much risk is embedded in a property and they need to be very, very careful in assessing what kind of discount they need in order to take on that risk. Okay, you should never be taking on forclosure of all things for even money, which is to say it needs 20,000 dollars and your only going to ask twenty thousand dollars off. That's crazy. 

 

You're going to do all that work and end up right back where you started. It doesn't make any sense. So, you know, understanding how much risk is in these properties, is really, really important. You know, is there a buried oil tank somewhere? Is there mold in the property which often requires extensive repairs in order to get the mold out? It can be fixed. Anything can be fixed. But sometimes it's very, very expensive. So, you know, far more  expensive so you've got to take those high-risk elements and make sure that you've got a pretty good feel for whether or not you know, they're going to come into play and if they do,  run away! Because once you buy it, it's yours and there's no givsies-backsies. Okay. Bank is going to make you sign multiple documents that say, they don't know anything about the property, you know, if something bad happens on the property once you own it, it's your problem. Okay, they don't want - the whole process is designed to get them off the hook and make sure that you can’t sue them. You need to be aware of that and that means that you need to pay a price that takes into account the fact that you're taking on all this risk. 

 

Here's the good news. Okay, you don't need a  forclosure to make money in real estate. If what you want to do is find a distressed property and fix it up. There are tons of them typically out there. And you can do the same math that you're doing foreclosure, except they're easier to buy!  Estate sales are often sold through the traditional process through MLS. They're a great way to find properties that need work. But ultimately, they are sound houses, without the risk that, you know, foreclosures take on. Okay, without the cash needed, right up front. A lot of times you can live in a dated house for a while, then fix it up as you go. So focusing just on foreclosures and assuming that there's deeper value there, I think is not a good way to find a house, especially if you're on a budget. Okay, if you're on a budget, you need to cast as wide a net as possible and figure out where it is. Believe me. You're not going to get the discount you think, on foreclosures.

 

Does it happen? Sure, It happens.  But it happens with other property too, it just doesn't happen with foreclosures. Every once in a while, nobody can see the diamond in the rough. Okay, and that house sells far below where it should that, It's a good value. I mean, it happens! But it doesn't just happen with foreclosures and you don't need to limit yourself to foreclosures in order to build equity and in order to be successful investing in real estate. I hope that sort of clears up the process from how it used to work, to how it works now and hopefully you've identified whether or not this is something that you want to do. There’s  not a ton of foreclosures right now, but that will change and when they come back on the market I’m sure this video will get a lot more looks. Alright, folks, until next time. See you.

 

March 20, 2022

Title V Overivew Massachusetts Septic System Reports Explained

 

Today in this video, we’re going to cover Title V. It's really about septic systems, and Title V is  the Massachusetts law that covers septic systems installation, and inspections and basically respond to stuff that I like to go over whenever someone's buying a Title 5 property which is pretty common. In this area, 40 to 50 percent of the properties and Title 5, they have septic systems, and so we run into them all the time and there's definitely things that most people should know before they buy a house. I mean, anytime you're buying a house, you should know as much as you can about the expensive components and septic systems definitely qualify. 

 

So what is Title V? As I mentioned, Title V is a law that governs septic systems. We talk about Title 5 in real estate all the time, but we're usually talking about the report. So when you sell a house in order for you to get a mortgage for the next buyer, to get a mortgage on that house, the bank's know that they need to ask for Title 5, make sure that the septic system is good. So they do! And that Title 5 report is what they need in order to check that box and make sure someone can get that mortgage. So the report is really thorough. I mean, it's 17 pages and even all the pages aren't necessarily filled out for every septic system, there's a lot of stuff that's in the report. If you're looking at a lot of reports, you can sort of figure out a lot of stuff about a septic system. But it’s not exhaustive. They don't dig the system up and check it out. There are things that they do not do and you should be aware of the fact that they haven't done them. And so the main thing that I think most people should really need to understand about a Title V report is that it is not a warranty and it's not a guarantee. So if they give you the report, you buy the house, the system fails a week later. That's just tough luck. That's how it goes. So they're not really on the hook for that. The folks that are inspecting systems are licensed by the state. So it's in their best interest to give you as clear and understanding of the system as possible. And if it is going to fail, they're supposed to fail it when they inspect it. But you know, things can happen. Most of the time that's pretty much how it works. 

 

A lot of people prefer city sewer, I just did this slide because there are some pros and cons about septic systems, and I think the biggest Pro that's out there that I think people don't understand is that they're super environmentally friendly. Way more than city sewer! City sewer requires power, you know, not not just to move the water from you know your house to wherever it needs to go. But most sewage is treated, and treating sewage is an expensive proposition. It requires a lot of electricity to get waste water back into a situation where it could be released back into the environment. Septic systems, most of the time do not require any electricity at all, and they use bacteria from Mother Nature and they release the whole system back to Mother Nature. So ultimately, you know, you're you really I think it's hard to beat the environmental friendliness of a septic system. Another Pro, obviously as you don't have a sewer bill, I mean sewer bills are hundreds of thousands of dollars every year for most folks in this area and they're going up, you know, they don't tend to go down. They tend to go up because you have to get septic treatment plant. So the more people that move here and where stress is put on septic treatment plants, the more routing they have to do to get him to other treatment plants. It just gets more expensive or more pipes they have to maintain.  

 

When you don't have a sewer bill there’s a huge savings, now, the offset there is, you're basically in charge of your own Sewer Service. Okay? Even though modern-day systems are designed - and Even the older systems - are designed for a really long use by that, I mean, decades, 25 to 30 years is what they were designed for, when they do need to be replaced, the bill is often very expensive. Twenty to forty thousand dollars is not out of line for typical septic replacement, especially a full replacement. So some systems can be kept going by replacing parts, you know, a lot in this area, a lot of D boxes, were not required to be particularly good, and today, the standards have been improved. But sometimes you run into older systems that have bad D-boxes. You can replace them, that doesn't cost twenty to forty thousand dollars, but it's not cheap either, and it's expensive. There are things that you need to know there. 

 

When I'm looking at a report. There's a bunch of things that I'm trying to figure out. First, I'm trying to figure out how old that system is because like I said, most of them are designed to last 30 years. If you got a system that's 50 years old that’s in the ground, I think you need to have a discussion about that. Right? Like, it's really you got to start thinking about how the systems work and how much pressure it's been under for 50 years, try to dig into the report, see if they've got good drainage information in there. If it's if it's a system that was done in the 1990s and that would make it 25 years old today, not really worried about that system, quite as much because the technology has gone a long way. And if it's been properly maintained, it will probably still have, you know, plenty of life left in it. 

 

But ultimately, when you're looking at the report, those are the kinds of things you're trying to figure out. Sometimes we run into ed. (houses) that have very small systems, even though the house is quite large. I won't get into why we see that, but sometimes you do see that. So it's a four-bedroom house it functions like a four-bedroom house, but it's only got a two bedroom system... If you're putting a lot of people in the house, that's a concern. Because the amount of water that that system is designed to handle, it's probably not consistent with how you're going to use the house. So that is definitely something that you need to look at for any system that you’re going to buy, making sure that it's the right size for how you're going to use the house. Not just the right size for the house. A tough thing to find out from the report is how well the seller is taking care of the system. It's not usually information we can give you! We just don't know. There is nobody looking at it on a regular basis.  For everyone's who’s buying a septic system, you do have to take some sort of chance there. If there's obviously serious problems with it, they should come up when it's inspected. They should be in the title V report. But there are a lot of things that people can do that are not proper, that are harder to have inspectors notice. I also think people should know, I mean, a lot of houses are on their second septic system and if that septic system was done relatively recently in the last 20 years. If you take care of that system, it's going to last a long time. You know, I mean the chances that it will outlast your run with the house are very good. And you should really understand how they're put together so that you can keep it running for as long as possible for as little money as possible. It really doesn't take a lot of time or money to keep a septic system running the way it ought, and especially modern-day systems, but you still need to know what to do. And so it's probably a good idea to talk about that before you buy the house.

 

 

This is what a septic system looks like. I have another video that goes into this in more depth, with the key things here are just that there's a tank, a D box, and a leach field, the report addresses each of these at various levels of detail. They definitely get to take a good look at the tank. They're supposed to take a really good look at the D box, if there are reasons that they can't they note them and if they found problems that require fixes, in those areas they note them too. The one part they can’t really inspect is  the leach field and unfortunately leach field failure often requires a new system. So those are the chances that you take there. Some people don't want to take those chances,  they highly prioritize city sewer systems, but I think you can actually really reduce your risk of having problems with your septic system by looking at those reports and understanding that  Just because it says “pass”, that doesn't always mean everything’s OK. But a lot of times a passed system, with a little bit of knowledge to go along with it, means you can have a lot of trouble free years with that system, and not pay any sewer bills, which can be a really good thing. So, little knowledge can go a long way.  I hope you enjoy the video. 

March 8, 2022

Septic System Component Overview Video

Septic System Component Overview Video

 

 

Video Transcript

Hey, how are you today? I am going to go over septic systems In today's example, we’re going to go over the most common type of system that we see in residential real estate in this area. It's all governed by Title
V law, and you haven't already seen it, I do have a video on Title V where I sort of breakdown the report and talk about the kinds of things that we're looking for, in the report when we go through, the kind of types of things that you should probably be thinking about.. 

 

If you want to know how a septic system works really, I don't have a good way to show you when I'm at the properties. I did this quick little video so that you can sort of see what's going on. And again, this is the most common setup. It's a good setup. It's a good overview, but there are lots of differences between the various setups and there's a lot in the more modern systems, anything in the last 20 years, generally has significantly sophisticated engineered components that are worth talking about. 

 

If you're already in a house and you just want to learn a little bit about septic systems, have a conversation with the guy that's pumping your tank. And if you say, well, “I don't have anyone pump my tank”, go find someone and get your tank pumped. It's been too long. Okay, even modern day systems are not designed to run indefinitely without pumping there. We'll go over a little bit why, but generally, there's three components to a system, a tank, a D box and a leach field. The size of those components depends on the size of the system and it's generally rated by bedroom. Soa  two-bedroom system is going to have a smaller tank, smaller D box, and smaller leach field. A five-bedroom system is going to have a big tank, a big bigger d-box in a much bigger leach field. The reason is because for every bedroom that a, and they're rated and bedrooms for some reason,  But, I mean make sense because they're trying to take a guess at how many people are living in the house to figure out how much water you're going to use. 

 

But they're rated by bedrooms and basically a bedroom equates to 110 gallons of water a day per bedroom. So a four-bedroom system is 440 gallons of water per day.  That is a ton of water. I know that sometimes I get questions, they say, what if I use a lot of water!  If you're using 440 gallons of water a day, you are using too much!  You're being very wasteful. Come on. Let's have some respect for the environment here. The systems are really not designed for that. You know, you shouldn't be doing that. Okay, but most people, you know, my family, a family of five, very typical family, but I think we use 140 gallons a day on average, you know, that's all laundry, all showering. You know, it's just really, really hard to get into, you know, 400 a day. And so, and you really shouldn't be. So again, these systems tend to be over engineered for daily  household use, which is good, make means that they're less likely to fail, but they do get really big as the number of bedrooms goes on. But generally everything goes into the tank. The tank is primarily for solid waste collection. What they're trying to do is separate everything that's in there so that it doesn't get into the leach field. You don't want solids in the leach field, which we'll get to in a minute. But basically what you're hoping is that nothing but liquids gets into that d-box. Okay? And liquids, ultimately that can be broken down, obviously water doesn't need to be broken down and go right back in and system but there's lots of other stuff that the solid waste in here, which is designed through the helpful, use of bacteria to break down into a liquid, which ultimately then goes into the D- box as effluent and then out to leach field. 

 

Okay, once it gets into the leach field, again bacteria does its work returns, everything, 100% of everything, back to Mother Nature. It's good for your lawn too. I mean, you can't beat it. So, if you're not sure where your tank is, I'll tell you the end of February or early, March is a great place to figure it out. All you've got to do is look to where's and see where the snow melts first! Okay, your tank, because of the bacteria in there, that's breaking down those solids is generating enough heat where it's going to melt the snow on top of the septic tank. And so, you know, I get a nice clear outline. My tank must not be very far below the surface, but I get a very clear outline every time the snow starts melting, on exactly where it is. I don't really have to guess I know exactly where it is. So your leech filled with not produce that kind of heat D box, doesn't produce that kind of heat. Those are harder components to find, But they are in your  title 5 and it should be noted that even though the tank is relatively easy to find, because it's close to the house, the D-box, and the leach field can be really far away, and some of these systems have pump up chambers because gravity for whatever reason, the lot isn’t helping you with gravity. And so, you know, you can move this stuff wherever, and sometimes they do that in order to find a place where the drainage is good enough where they can put a system in, but most of these systems are gravity based, 90 to 95%, I would say use nothing but gravity and mother nature. This is a brief overview. I hope you found it helpful and, but go over the title 5 thing if you're in the market for buying a house, and we probably are because that's why you're on my site. But if you did just come here to learn a little bit more about your system, and you like the video, let me know!



March 4, 2022

What Counts as Square Footage when looking at a home for sale?

 

 

Transcript of Video

Okay. So in this video we're going to help out buyers and a lot of sellers in understanding what counts for square footage. That's the question I usually get asked, “what counts”. The answer is it all counts, but it doesn't count the same. On the buyer end, which is where we have most of these conversations, buyers are worried that they are paying too much for a particular property because the dollar per square foot is high. Well, there are reasons why the dollars per square foot can be high relative to other properties, because buyers don't just look at whatever the number is in either public record or on the MLS sheet and then make a decision that the price should be, you know based on the dollar average dollars per square foot of the town's, that’s not how they make the decision. 

 

They make the decision based on how useful house A is versus house B  and if house B got this price and House A is more useful, they pay more. If it's less useful, they pay less. And square footage plays into those kinds of things. I say this all the time, buyers are pretty smart. They pay for utility. They don't pay for the raw square footage number, they pay for utility. Some of them do pay for the square footage number, and a lot of times when they do that, they're making a mistake, but with a little bit of practice, you can make much better decisions about this in understanding how square footage can be different. Most people do understand that square footage is correlated with price, but it's understanding that the square footage is different. So in going to the public record to figure out the square footage to see “what counts” isn't going to help you because as the decades have gone on towns have tried to capture square footage, which they try to do accurately for tax purposes, but they capture it differently. 

 

And on top of that, a lot of homeowners haven’t exactly helped out the town, because they have finished a basement or they finished the third floor and they won't tell the town. They don't want to get taxed on it. So they try to keep that secret.  Now, that's not a good idea. But we're not going to cover that in this video. We're going to leave that alone. Eventually the town is going to figure it out, but even when the town does,they are taking a very rough assessment and what the square footage might be worth at best. And so as a buyer you have to be far more aware of the differences. 

 

The main thing that you need to recognize is that houses that have a lot of square footage, but are less useful are going to get lower dollars per square foot than houses that are highly useful with a really high utility. I'll walk you through some examples here. Most people would not pay the same price for basement square footage that they would for above grade square footage. And the reason is very simple. They're not going to be in the basement very much. We're going to be on the first floor, the second floor every single day.  The basement? Maybe on weekends to watch a football game, right? You're not using it the same amount so it's not worth the same amount. Really, this is pretty obvious stuff and buyers sort of intuit that they shouldn't pay the same for finished basement space. So same thing with space that's on the third floor. You have space to get an attic, you know, it's got a roof lines interfering and it's kind of just a funky space, and the stairway comes right up the middle, I mean it's useful. It's nice to have! Nobody's going to say, “well, I don't want the house because the attic is finished. But they're not going to pay the same amount of money that they are for the first and second floor. They're just not!  You know, it's bonus space.  And bonus space is worth something but it's not worth the same as the space you use everyday. 

 

An outbuilding is another example of that, an outbuilding is a building that's not attached to the house. We don't see this a ton, but when we do, see if they have a nice finished space in an outbuilding, It's not they don't pay the same for because they know. In January and snow storms that are going through, they're not going to use it X number of months a year and because it's not attached to the house it is more difficult to access. You got to go outside and get there. So it's worth us. Tandem rooms which we occasionally find in older houses are when someone is added on a bedroom behind another bedroom. And so the only way to get to the new bedroom is by going through the old bedroom. Well, it's really inconvenient for the person using the front bedroom and because of that, most people don't really like tandem bedrooms, they don't pay the same amount for him. So again, that's going to impact the difference between where the house sells based on the public record square footage, and what the buyer really thinks the square footage is. Some houses have Dead Spaces. A lot of houses that have been added onto without a really good plan, and they have dead spaces and  just the rooms that nobody can really figure out what it is that they might use it for. And typically, when those houses sell, buyers don't pay for those rooms because they  can't figure out what they're gonna use it for. But some dead space is very useful and the example I have here is mudrooms. I mean, you can't really, you know, spend time in a mudroom, but, in New England, it's a super useful part of the house. So if you have a big expanded mud room in New England, most of the time buyers are more than happy to pay full freight for that room because it's got high utility. This is New England! We wear winter jackets in June and occasionally we wear light jackets in December and the weather is funky here, and having an easily accessible closet with boots and umbrellas and snow gear for everybody in the family, you know, it's useful. It’s a useful thing to have and it keeps you from having to store stuff and it just saves you a lot of Time,  and Time Savers worth money. People recognize that. A good mudroom is worth its weight in gold and usually gets top dollar, even though you look at it on a floorplan might be considered a dead space, right ? But there's other spaces in houses that do not have obvious uses to them, and if and if they do have uses, it’s on a much less useful time frame, and they don’t pay the same for them.

 

It takes a little practice. It's an art, not a science to really figure out what the useful square footage is for a house, but it's not usually the number that if it's a super efficient house, it's going to look expensive but it isn't if it's a really inefficient house. It's going to look cheap, but it may not be.

 

So the key here for any buyer is you don’t want to over pay, and on the sell side, you want to  know which parts of your house are useful or not useful. And that's really what you've got to keep in mind. 

 

That's the overview for today. Hope everyone got something out of that. Remember if you really want to understand what's useful square footage, or not. We're here to help, especially on the buy side. Don't overpay just because you're trying to use a simple metric which is actually quite complicated underneath covers. All right. Have a good one. 

 

Jan. 18, 2022

Quick Home Buyer Quiz!

 

Below is a quick video from our expanding video library.  If you're a first time buyer, (or even a second time), see how comfortable you are with these common issues that we're often helping buyers with.  We discuss:

1) Mortgage costs

2) Betterments

3) Easements

4) Radon

5) Lead Paint

6) Housing renovation estimates

 

Be informed!  A house isn't a toaster, you can't return it! 

 

Sincerely, Matt Heisler

 

 

 

 

Transcript:

Hey Everybody!

 

I know a lot of you out there that sign up on my website are looking for your first home.  Very exciting! So a lot of people decide early on that the first thing they're going to do is look around on the web and then they migrate to looking at open houses, And by the way, I have a secondary video that kind of goes along with this one about open houses. You may want to check that one out. But a lot of times they're leery of getting an agent early on in the process. This is a quick quiz to sort of determine whether or not you should probably engage a buyer agent earlier in the process. We're going to jump right in and see whether or not it's a good idea for you to get an agent. I have a series of questions here. If you get them all right, then, you’re probably pretty prepared to go out and start the process on your own. If you get most of them wrong, you probably should align yourself with a buyer agent sooner, rather than later.  Good news!  We're available. So you can give us a call and reach out to us and we'll help get you straightened away.

 

  The first one is very simple. It has to do with getting a mortgage, everybody almost, everybody's got to get a mortgage. Okay, so how much does a mortgage cost? And usually, when I ask buyers this question, they don't know, they will turn around and tell me what they got for an interest rate. An interest rate is not what a mortgage costs. When you get a mortgage, ultimately the bank or mortgage provider charges you a certain amount of money in order to do all the paperwork to get you qualified. It is not easy to figure this thing out. It's not like going in and Target and buying a shirt with the prices on the tag. You actually have to go through what's called the closing disclosure or CD for short, and you've got to strip out what the actual bank charges are. And Banks aren't really all that interested in making this a clear process because a lot of times they want to put higher fees into the mortgage in order to help their loan rates be more competitive and ultimately make more money. So they aren't all that interested in being transparent about what their loan costs are. Which is why if you ask a loan guy, how much does this loan cost? And you're not going to get a straight answer. I mean, I'd be really surprised if you find someone who gives you a straight answer,, call me, let me know who they are because I want to work with that person. But most of the time you're not going to get it. So the real question here is, how much are you going to pay in Bank fees? One-time charges to the bank? 

 

Hopefully, you've already got that number in your head. The mortgage has three types of fees, prepays, which is money that you're going to use to pay for your bills. A lot of times taxes are collected up front, but you're going to use them to pay taxes on the new house. We don't consider that a bank charge. Okay? Even though the bank is collecting that money, they're going to use it to pay your bills.  That's not really money the bank gets, that's money the bank holds but they hold it on behalf of your bills. There's also title insurance. I'm not going to spend a lot of time talking about Title Insurance here. It's usually 20 to 30 percent of all your closing costs. If I'm telling you that title insurance is 20-30% of all closing costs, and your first question was, “What is title insurance?” That's your first clue that, maybe you should probably work with a buyer agent who can answer that question. Title insurance is not home insurance.  Title insurance will not protect your house from a fire. It protects your house from other things and it works like an insurance product but it's very different than most of the insurance products we pay for.  You should probably find out what it is because it's expensive, and you're going to have to pay for it. And then the last thing, the last big group is the loan cost, the bank fees and they should be between 2500 and 3500 and they do move around a lot. They've been going up recently because it's been harder to get Loans done, and they've been doing lots of re-fis and generally, when they get busy, they charge more because they can. But normally 2500 to 3500. I will tell you that 2,500, I do not see that a lot. It's very difficult to get that but it's on the lower end of what people get - maybe twenty percent of the loans. I see people are getting 3000 is a lot more common and 3500 is, is on the higher end of what should you be paying. How much do I see people pay? Five, six. Seven thousand dollars is not uncommon. If people aren't careful, and they're not looking through it.  A lot of times they come to me and they're very loyal to the bank that they want to use. They don't shop around and by the time I see the CD, it's too late because they tell me they're not going to switch Banks. And then I look at the CD when they closed and they just three thousand dollars right out the door. Really, you want this as a thing that you want to check out first. If you're going to pay for points, points lowers the rate, and sometimes it's a good thing to do. I'm not going to tell you its a bad thing to do, but it will add substantially to the one-time cost that is a one-time fee. But you get something for it, which is a lower rate and certain other types of loan structures like being able to carry a house for a certain amount of time. They also cost more money. They have additional charges in there to that aren't going to make the little more expensive as they should because you're getting something for it. But the answer, the question, is this twenty-five to thirty-five hundred. 

 

All right, question number two. To if a house has radon. Should I find another house? So radon is an odorless, colorless gas. That's been shown to cause lung cancer. So what do you think? Huge problem? 

 

Okay. Yes/No, should I find another house? All right, generally, no, you should not find another house. You talk to me, you talk to any real estate agent, you talk to most home inspectors. They will tell you: That's not really a great reason to find a different house. Radon, first of all, is incredibly Fixable, you know, and the fixes are cheap. They're reliable. They often last for 20 to 25 years before they need repair work. And then there are even cheaper fix generally costing for $500 to get another 20 to 25 years out of them.

 

Radon is easily testable with a cost that often costs less than 30-$40 and they're long lasting. So, there are very few fixes in real estate about anything that are as cheap, as easy to fix as radon in a house. So, I mean, there are exceptions, right? You know, but I mean if you're a heavy smoker, I’d probably be a lot more sensitive about moving into a house that had radon even if it was protected, but generally most houses have radon levels that are just over the line and exposure to those low levels of radon even when the systems aren't in are usually measured in decades, before it causes a lot of risk. You don't get lung cancer from radon in a couple of days, usually takes 20 years. Most people don't even stay in the house that long. It's just, it's not really this giant serious immediate health hazard. Most of the time you got plenty of time to test, and make sure its (the mitigation systems) working. Generally people move into houses with lead paint with far less discussion than they do about radon. Lead paint I would consider a much more serious health issue. So, you know Lead paint can be a problem relatively very quickly in a matter of months or years. And on top of that the cost for mitigating a house with LED is, is often very, very high. So, fortunately today, a lot of houses have already been at least partially mitigated. You know, they have new windows and stuff, old windows are huge source of lead paint. Newer, vinyl windows, they don't have any lead paint at all. Obviously, there's still lots of houses with lead paint still, lots of lead paint considerations in older houses. And that's a more serious problem. Something that you should probably talk more about. And yet people tend not to worry about it as much, which I'm not really sure that that makes a lot of sense. 

 

If you were thinking that Radon is definitely a “no” for you. Again, maybe It means that maybe you're not as up to date on some of these issues and how they get fixed, and you should probably have those conversations.

 

 I just bought a home - this is question 3 - I just bought a home and it has betterment. What do I do? Usually when I have a conversation about a betterment with most first-time home buyers, they have no idea what a betterment is.  Is that you? Lots of houses have betterments.  A surprising number of them. A good listing. Agent will have the betterment information available before you write an offer. But even if it's in there, even if it's in the listing sheet, most buyers - they don't know what it means. They don't understand what it means. You should have this conversation with your buyer agent. What is the betterment for? How much is it going to cost me? And how long is it going to cost me this money? A lot of various  betterments can  have 10 years left or more! If you're going to be in the house for 10 years, you’re having to pay the whole thing. Especially if the seller is asking you to assume it. On the other side if the betterment wasn't properly disclosed, you should know that many times we encourage the seller to pay for the whole thing. A lot of times that happens if it wasn't properly disclosed. If you're in a direct deal with the seller, there's going to be a lot of pressure on the buyer to sort of eat the betterment. To kinda say, “ Hey, you didn't know”.  If you don't have an offer that's been written to put pressure on the seller to eat the betterment for non-disclosure. Then you could get stuck paying it! That's not really what you want to do. You know, you want to make sure it's basically going to assume every house has a betterment whether it's disclosed or not in, right? Your offers are a way to protect yourself so that if a betterment suddenly shows up and they usually show up pretty late in the process, if they are going to show up. Usually you've already called movers, you're planning on closing, you know, it's a bad time. You want to make sure that you don’t get stuck paying it. 

 

Along with betterments, which is basically a kind of easement. There are regular old easements. Okay, buyers today don't know a lot about easements, and they're definitely not aware that some easements don't have a lot of price impacts and some easements have a tremendous number of price impacts.  I'll take the example of a common driveway. So usually if I take a buyer down a common driveway, they either say I'm not buying this house because they hate it, or they say the common driveway doesn't bother me, which is great. But then they're ready to pay pretty close to the price for the house. As if there was no easement there at all. That's not what you should do. So most people, in fact, nine out of every ten people, maybe even 18 out of 20. They don't they don't want an easement, a serious easement, on their property that involves sharing the property with someone else at some level and that drives the price, the retail price, down of the house for a common driveway. It's not uncommon for the price to be 10% lower. Now, in a market that's really hot, we see that gap close. But if the market slows down, the gap comes right back, so, you know, you're going to get stuck, paying that premium if you're not careful, and if your not sure how much easements should cost.

 

I’m talking about common driveways here, but there's dozens of different types of easements and they all, you know, have a certain value that generally depreciates the lot. Sometimes the values is very small. Sometimes the value is very large. But either way, you should definitely make sure that you understand the easements that are on the lot. Most buyers don't know how to research easements. They don't know how they affect the lot (price). They don’t have any idea what they cost. So if you want to take a really good, look at the property that you're going to be buying for the next six or seven years, and to minimize the risk, you need to be having these conversations and working with someone who's going to do this research for you. 

 

Okay question number four, so probably the number one thing I get asked about all the time is repairs. How much does it cost to repair this? And generally buyers are either super optimistic - They think that they can get work done, very cheaply or they're terrified. And then they overestimate they take whatever number I give them and double it. That's very common. It's like hard for me to say, “You don't really need to double it. You can bring it down a little”. It's very difficult, I find for buyers to estimate the cost of these things only takes a little bit of research to figure out what it's going to cost. So, here, I have a couple of common examples and I have a typical roof replacement of assuming that this is a 1600 square foot ranch or 1,600 square foot Colonial.

 

  Okay, and so you see the prices there and then a full kitchen remodel again, modest sized house 1,600 square feet right over 1,600 square foot condo that has the original kitchen and you know, you're going to be doing it. How much should it cost? Okay, now it matters how much it costs because if you can buy a property where this work is done, then you should be willing to pay more. You shouldn't be paying the same amount of money for a property that needs one of these two things. These are serious things, they have to be done.  It de-values the property. So you should be making sure that you're getting that discount. We'll move on here. 

For the roof, typical price would be nine thousand dollars. A couple years ago was eight thousand dollars, probably nine thousand dollars today.  And that's should be a roof with, you know, ice and water shield at code. A 30 year plus shingle, with some copper in it, you know, really high quality roof. Okay, and so it doesn't cost 16 thousand dollars to do a regular simple roof. Okay, sixteen thousand dollars is for 3,000 square foot Colonial that has a lot of pitched roofs and it's very steep slope. That would be the more expensive install because there's just, there's more involved, there's more labor involved. 

Okay, kitchen remodels, however, now they vary a whole lot. Okay, so I'm going to give you a number here, but if you really want an accurate estimate, you've got to have a conversation with your buyer agent. About what exactly it is that you intend to do. So, for most homes, under 500,000 in this market, a redo should be less than 40 K. Okay? Cabinets are only going to be five or six thousand dollars. And countertops should only be three or four thousand dollars. Okay. So those are the two biggest expense items and basically you can double the labor. But if you're doing, you know, flooring, so where does it get more expensive? Well, if you're going to rewire the whole thing, right? If you're going to move all the lights around and start moving walls around, you know, the walls will add five to ten thousand dollars to a project depending on the wall. So, you know people always say “well, I just want to open this up.” ‘Just’ and ‘open up’ is not, those 2 words don’t go together. It's an expensive project to do. You can do it. Generally, you can almost always do it, but it's expensive and it may not be worth it based on the kind of house that you have in the kind of extra space you intend to gather. But having said that most of the time doing cabinets, floors, backsplash new appliances, you know in a smaller kitchen should be under 40 K. Still a ton of money, right? Got to be really careful with it. You want to be talking with someone. I do help my customers when they're planning and remodeling and help them figure out what they want it to look like. And then show them different ways where they can get similar looks, but spend less money, right? But if you have an expensive house, your house is 800 thousand dollars, you're going to spend at least a hundred, you know, eighty thousand two hundred dollars. Hundred thousand is not an unreasonable budget for a house like that. Especially if the kitchen needs a ton of work. So again, if you're moving stuff around, or expanding it. And If you're going to make your house bigger in order to get that kitchen in there, these numbers are going to look silly low. Okay, I've seen customers, they just had four feet off to the back of the house that adds like seventy five thousand dollars. It's probably not something I would do, I would move because I think it's cheaper to move than it is to add four feet to the back of the kitchen. But you know, I see it all the time. You just need to know that any time you're moving an exterior wall. It's it's gonna make moving an interior wall look cheap. The key here is that you want to have some kind of budget. Some kind of accurate budget for almost any house. Most houses need something. They're in the middle of their life cycle and they need burners and roofs and floors, and bathrooms and kitchens, and windows, and hot water tanks, heating changeovers, all sorts of stuff. And you really want to be armed with those numbers so that you don't get into a house where you're paying decent money for (the house) and then it's just one bill after another. So. You don’t want to get into a money pit.

 

 

So those are the four questions if you felt like those. So those were the four questions. Hopefully you feel like you either are all set ready to go on your own because you know so much about housing but if a lot of these questions made you say hey, maybe this is complicated. There are people who do this every day, who have prices from past clients and can really guide you and get you the information that you need. So that you're making an informed decision about the House you're buying, which ultimately my perspective is what it's all about. There aren’t good houses and bad houses. There are just, you know, houses that are going to be more expensive to get back to where they need to be or houses that just don't they don't, they're not going to ever sell as much as high as they should for various reasons.

Jan. 4, 2022

2020 Real Estate Report for Massachusetts

Hello!

 

Here is the pod cast of my latest forecast for the year!  Great tips here for sellers and buyers.  For more information for your specific situation, give us a shout!  

 

 

Nov. 3, 2021

Why Zillow Failed at Buying Houses - and Why Others Will Struggle Too

Why Has Zillow Decided to End the House Flipping Business Program?

This post will at times get a little technical about the "insides" of what's it's like to be working with sellers *before* they list their houses, and it should be noted, that it's an opinion piece.  (Although I did read the full Zillow statement yesterday and there are numerous supporting statements in it.) I think, though, they also left a lot of stuff out (that they'd rather not talk about), and I'm speculating here as to what that is.

On the surface - to wall street types and others - it was a marriage made in heaven.  Zillow, creator of the "Z-estimate", and owner of one of the biggest advertising platforms for houses, would use their estimate power to buy houses direct, fix them (or not) and then flip them for a profit, largely by their own expertise and - importantly - cutting out the real estate agent, to make the process more easy for home owners. Genius, right? I had to answer a lot of questions about "was Zillow going to put me out of business" and the like.  And every time I was asked, I laughed, and usually answered, "Let's see if they make money at it first".  

The issue, you see, cut right to the heart of Zillow's z-estimate.  I know (most professional real estate agents as well!) that Zillow's estimate of a homes value has a LOT of blind spots (especially in places like Massachusetts, but I'm sure it doesn't work as well as they need it to everywhere).  If you're going to be buying (and flipping houses), you need to know what they are worth.  That is a huge starting point. Here's what else you need:

1) You need to know what it's going to be worth when you sell it

2) You need to know how much you're going to spend in fixes and carry costs

3) You have to do all that stuff while doing for less than half the average broker commissions in the area

4) You have to make *enough* money to make it worthwhile.

Guess what? Each of those is HARD.  It is easy to say - from Wall Street, or Seattle - that home buying and selling with the traditional real estate agent model is inefficient.  And expensive.  And unnecessary.  But now with Zillow's announcement - a company that has spent hundreds of millions trying to prove this - we can definitively say it's not nearly as inefficient as Zillow (and others!) think. Let's talk about why. 

Three's a Crowd

When you buy and sell a house, there are two primary cost sharing parties involved.  Buyer and seller.  The real estate agents protect and aid both parties for a fee.  Most agents work alone, under a brokerage, and have (relative to a large corporation) minimal costs.  They use personal cars, personal phones, and tend to stick to their local area, reducing travel time and other overhead.  

How does adding a company (will all the overhead and bureaucracy of a corporation) make this process more efficient? You wouldn't expect it to.  Generally, larger companies need to benefit from economies of scale to offset the additional expenses of "being big", which is why manufacturing is hard for start ups and good for corporations.  But what economies of scale are to be gained in buying houses? Can you save money on recording fees and title companies? Carrying Costs? Reduce fix or update costs? In most cases, the answer is no - these are fixed transactional costs, and there's no large company on the other then to leverage for "bulk pricing" - just independent contractors and governments that are working on fees that most feel are too low already. 

Here's another way to look at it.  When a seller sells a house, they pay their end of the recording fees, the full carrying costs (usually because they are living there), and the listing agent fees.  The buyer takes on the buyer's fees, and the buyer agent fees (yes, I know the fee comes out of the seller's net, but a more accurate accounting is the buyer is paying for the buyer agent fee*). This is all straightforward stuff.  So how does it look when Zillow (or Open Door, or anyone else) does it?  

Well, then you have the seller to Zillow transaction, and then the Zillow to Buyer transaction.  You now have 3 parties, and two transactions, instead of 2 parties and one transaction.  Is this easier for the seller?  I guess so, you don't really have to worry about the buyer not getting financing.  But is this more efficient on paper? It doesn't look so, and it's hard to figure out where any savings are coming from.  Oh, there's no agent! Well, sort of. 

Where did the Real Estate Agent Go?

We'll talk about the "ideal" situation first, and then the "less ideal but closer to actual".

Ideally, for Zillow, the goal was to buy the house direct from the seller based on their pricing model (no agent) and then sell it direct (no agent) on their website.  Selling direct is also called For Sale By Owner, or FSBO, and historically  FSBO's tend to sell about 5% less than they should.  Let's say Zillow was able to cut that in half - 2.5% - they still have to do an extra transaction for 2.5%. And that is to break even.  Ultimately, they probably need to come up with profits (which was the goal) and that's after they pay all the expenses.  (Zillow regrettably axed 2000+ employees who were working on the flipping of homes). 2.5% on a 400,000 house is 10,000. Let's say a goal of profit being 10,000, (frighteningly small) and internal expenses of 10,000, and transaction costs of 10,000.  That's $30,000 of costs that need to be covered, and only $10,000 of room to do it with.  This is starting to not look like a good business, where you lose about $20,000 on each "flip."

The less ideal situation is that Zillow was still paying buyer agents to sell the homes they bought.  So much for the 2.5% saved!  AND, they were also paying agents to come in and tell them what to pay for the house (they didn't trust their computers, and wisely).  These things just make the "theoretical" margins smaller and smaller, and increase the chance you'll never make any money. And the agents?  They haven't gone anywhere.  They are on both sides of the deal, as before. 

What was the plan to make money? 

Most of the talk about getting rid of agents was just that - talk.  It played good on Wall Street, sounded good in the media, and resonated with folks.  But it wasn't the plan.  The plan was to screw sellers.  We've already done the numbers.  Zillow (or any other home buyer), needs at least 20,000 to cover expenses and profits (it's probably more like 30,000), and no buyer is going to pay "extra" for a house.  Buyers pay market.  So where was the money coming from?  

Sellers.  You have to get the purchase price down by your profits and expenses. Just like professional flippers, the money is made at purchase - not at the sale.  That means you have to get the sellers down to a profitable price.  There are many agents (and others!) who have always offered you cash for your home.  But there's a catch - you get convenience, but you don't get market value for your home.  Zillow offered nothing different, except in situations where they overpaid - and took the loss at sale (65% of all their sales were underwater according to various media outlets).  Here's how the conversation goes:

Seller:  What will you pay me for my house?

Flipper/Zillow:  $420,000.

Seller: But my house is worth $450,000! 

Flipper/Zillow: Maybe, but we will take all the risk, let you close when you want, and pay cash. 

Seller: That's great, but 30,000 is a lot of money.  No thanks, I'll take the 30,000. 

I mean DUH!  Almost everyone wants the money!! It's a lot of money!!  In fact, Zillow stated that 90% of all "serious" home sellers weren't interested in Zillow's cash offer.  I bet the numbers were even more brutal when you start counting the "non-serious" sellers. I bet for every 200 inquires, they probably got one house to buy.  Which house?  The house where they mis-calcuated what it was worth, and paid the seller too much.

Home Sellers Aren't Stupid

Do I really need to point this out?  Home sellers have generally good ideas about what their house is worth.  They pay attention.  Most are close.  On average, they tend to overvalue their house a bit, because most of them love their house, but they generally don't grossly undervalue it.  And they get second (and third) opinions often, and they generally demand information to help them piece out the puzzle and make sure they have it right.  Sellers can do math.  And if you have an inefficient model that is going to take money out of a seller's pocket,  they are going to figure that out, and not do business with you. 

Ultimately, that is what today's announcement says.  Despite all the criticism that Real Estate Agents often get, the fact is we are pretty efficient at what we do, and we deliver more value than most other models (currently all other models!). Is there a faster, better, cheaper way to sell a house?  I'm not sure there is, but I spend a lot of time thinking about it.  Zillow did too - and spent hundreds of millions of dollars hiring very smart people and putting a plan into execution.  They failed spectacularly.  My clients are very happy with the value they get on the purchase side and the sale side.  I help them make and save money, with the largest single investment most of them will ever have.  The advice I give is hard to standardize, because people and houses are all custom, and the deals we do are custom.  People value real estate agents because the advice we give isn't generalize, it's specific to their purchase, and their sale. As long as that remains the case, computers are going to have a hard time catching up.

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*Really, the buyer pays the fee.  If the buyer doesn't buy the house, no fee is generated.  It's the buyer's money that allows a fee to be collected, as such he is equally responsible for payment. 

Feb. 13, 2021

Spring Housing Forecast 2021

Massachusetts Spring Housing Forecast for 2021

Normally, I'd be writing this in January, cause normally the we already would have a good indicator of what the match between buyers and sellers will be.  Not the case this year!  I expect there to be some big changes as we go through the months.  Let's look at some of the major factors that will likely affect the housing market this year. 

COVID

I mean, duh, right?  Honestly, it's the elephant in the room, and all the items that follow are one way or another CCOVID related so let's break them down. It's just too big an element to talk about effectively in one fell swoop, you've got to break it out.

Vaccination Progress of COVID

As of this writing, over 10% of Massachusetts has had one shot, about about 3.5% have been fully vaccinated.  We're up to about 40,000 shots a week, and figuring they will be split 50/50 for the next month or so, that means about 600,000 additional people will be fully vaccinated in the next four weeks.  That means we'll be over 13% vaccinated, which isn't super impressive except that teachers, healthcare workers, and the most vulnerable will be by and large fully vaccinated.  If J & J gets there one shot dose out then those numbers move up even quicker - more supply, and just the one shot means we could be looking at doubling the current rate of vaccination by late April.  But even without the J & J kicker, hospitals will be safer, schools could be back to in person learning - things that start to pave the way to feel safer.  And the bigger kick of all will be that the mortality rate will drop very quickly.  Roughly 60% of all deaths are those who will be vaccinated by the first or second week of March, and if we have the same success rate as Israel, virtually none of them will die.  That probably sounds too good to be true, but I think news like this is going to break through at some point, as it becomes obvious just how effective the vaccines are. 

Seasonal Decline of COVID

If you haven't noticed, cases are dropping dramatically across the country.  It's official - the dreaded second wave has passed, although so far the media coverage has not been particularly robust.  At their peak, we were seeing 250,000 cases a day in this country, but now we are down to 100,000.  Still a lot, but down a massive 60% in just over a month. That means hospitalizations and deaths should fall too, but a similar 60% we hope, which would be around 1200 a day, or around where they were in August. Hospitalizations are down in every single state in the country, which I find quite remarkable. That's without vaccines-  it should be noted that cases have been falling far faster than any effect from the vaccines.  Why is a rather big mystery (nobody is out there in the media/medical community explaining the sudden drop in cases that I can find).  There is a little talk (in the NY times, but not a lot of details) saying that the drop means we might be approaching herd immunity (again, not well explained), but if that is the case then we will likely see continued improvement in the numbers especially as the vaccination rates climb.  If you look at some states that peaked early (Illinois), the rates are down about 80 percent, and if the rest of the country follows suit, that would be great.  Really, this is all good news, and if the best case presents itself, March could be a month where sentiment turns. 

Kids Return to School

Hey, this is a big one. Don't dismiss the size of the impact that this will have on EVERYTHING, housing included. First, it will feel a lot more normal, but second - and most importantly - the number of parents who will suddenly have extra time to either look for a house or plan to sell one will go up sharply.  I know in the fall I was spending at least 18 hours a week on the kids and school (on top of my job), and I'm still around 6-7.  That is a huge amount of time.  This will also help if sports pick back up.  When will this happen? Unsure.  March, maybe.  April maybe.  But if there are problems, they'll go right back to remote or hybrid for the rest of the spring.  So it is a huge thing to watch, but very uncertain at this time. 

Overall Market Factors

Interest Rates

On the flip side, if the COVID numbers improve, I expect interest rates to move higher.  How much is the big question, but I think they will quickly get to 3.5% on a 30 year - perhaps higher.  Those are still great rates - but they will diminish quite a bit of buying ammunition for buyers and that will put a hard cap on prices.  Buyers are completely stretched at this point, and any movement in interest rates will change what they can afford. 

What Will Happen To the Springtime Housing Market?

I think it is a given that all of these factors are going to happen.  The question is when, and do they all happen at the same time, or do they space themselves out.  Ultimately, it will probably change the timing of how things play out, but probably not the magnitude. 

The most likely case is we start to see some houses come on in mid-March, or late March, and catch up a little bit with the delayed inventory cycle we are seeing.  There is so much pent up demand, however, that these homes will be very tough for buyers to get. They will sell quickly, and many buyers are not looking at the value they are getting, and the unwary will probably overpay for this bunch.  Things hopefully will smooth out by April, and I'm hopeful by May a lot of the steam will come out and we can have a productive late spring.   It is certainly possible it all happens a month later, or even two months later, but I'm pretty sure May will be quite busy.  Sellers would be wise to target earlier - not later - and buyers should be patient in the early go.  Which will be really hard! But they should.

An Educated Home Buyer is a Happy Home Owner. Read On!

About Matt Heisler

Matt Heisler is a real-estate professional and owner of this website. He has been selling homes in MA for buyers and sellers for over 20 years. He is an expert in foreclosure purchases, short-sale purchases, short-sale sales, buy and hold investing, fix and flip investing, and of course traditional residential home sales. He is happy to take questions as they pertain to real estate on Title V, Radon, Termites, Sump Pumps, Roofs, Foundations, Wells, Septic Systems, Cash-Flow, Staging, and a host of other housing issues. As a Vanderbilt University alumnus, he is proud to serve his local community.

*All information is posted in good faith and is assumed to be reliable, but may rely on third party information sources.