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.
