Saturday, February 26, 2005

Condos, Co-ops Have Distinct Differences

In many markets across the country where housing prices are escalating (some would say out of control), the condominium purchase has become very popular once again. In the Washington, D.C., region, condos have arisen to the introductory purchase for many first-time home buyers -- the median price of housing having reached $371,000.

As soon as you mention "condo", however, most people imagine an apartment-like dwelling, when in reality a condominium is actually talking about the form of ownership, rather than the style of the structure. Nevertheless, for our purposes here, we'll keep with the apartment-type description.

The National Association of Housing Cooperatives (

NAHC's web site says the first housing cooperative in the U.S. was formed in the 19th century and was organized in New York City. The U.S. now has more than 1.5 units in cooperative housing communities -- many of them in large metropolitan areas, such as New York City, Washington, D.C., Chicago, Miami, Minneapolis, Detroit, Atlanta, and San Francisco. The style of housing ownership allows for affordable living in an escalated market.

The concept of the "co-op" stems from the business model formed nearly 200 years ago in Europe, where a group of business people would join forces to increase their buying power. All purchases and sales were derived from the group of their product, with the sharing of expenses and, of course, profits. In real estate, the co-op is an extension of that model.

With a condominium, the homeowner actually buys a part of a building and its land -- the unit of the building goes up for sale and an individual can purchase it. Usually, the highest bidder with the best credit wins. The contract is up for review by the owners of the unit and a final decision is made.

A co-op works quite differently. The purchaser is actually buying an interest in the cooperative -- which entitles the co-op member to a unit (which could be a 1, 2, or 3-bedroom dwelling. In essence, no one owns their individual unit, rather they all have joined in to own the property, the buildings, the improvements, and all the real property within it. The contract is more like an application for membership, which is reviewed by the board of directors for approval.

Many of the co-ops I've seen do not allow investors -- which is a strength as far as financing and upkeep of the property is concerned. However, because of the form of ownership, the co-op can trail the real estate market when it comes to comparable values with condos. For instance, I recently saw a 3 bedroom co-op in a Washington suburb that was listed at $185,000 -- whereas a similar size condo in the area was going for $250,000 and rising in value. The co-op was even newer and in better condition than many of its counterparts.

Another similarity is the presence of a per unit monthly fee -- condo fee or co-op fee. The condo fee usually covers common grounds maintenance, trash/snow removal, and various utility bills. The upkeep of the unit is all up to the individual owner. If you seek out a co-op, don't be surprised at a much higher monthly co-op fee -- however, many times these fees cover items that will probably never be included in a condo fee. Items, such as all appliances, air conditioners/furnaces, etc., are often times included in the coverage. If it breaks -- the co-op takes care of it. Thus the co-op fee may be a lot higher than its condo counterpart, but it provides a forced savings plan for any future breakdowns.

If you decide to purchase a co-op, then financing is not going to be as readily available. Many lenders do not offer co-op financing since you're purchasing a share of ownership rather than a complete unit. However, start with the mortgage company of your choice and get a referral if they don't offer it. For a list of mortgage companies, visit

Published: February 25, 2005

Online Tools Help With Builder Selection

Are all builders created equal? Thankfully, no.

Even though most metropolitan areas are loaded with production-line builders, there are some differences -- the type of homes they build, the quality level and pricing structure -- and that's good for the broad range of consumers who want a new home instead of a resale.

The consumer has two general types of builders available to them: custom home builders and production home builders., the web site of the National Association of Home Builders lays out the differences between these two types of builders.

Custom home builders generally:

Build on land you own. Some custom builders also build on land they own.

Build one-of-a-kind houses. A custom home is a site-specific home built from a unique set of plans for a specific client. Some custom builders may offer design/build services.

Build single-family homes.

Are generally small-volume builders (25 or fewer homes a year).

Tend to build high-end homes.
Production home builders generally:

Build on land they own.

Tend to use stock plans, but usually offer a variety of plan choices and options.

Build all types of housing -- single-family, condos, town houses, and rental properties.

Are large-volume builders (more than 25 homes a year).

Generally build for all price points -- entry level, move up, luxury, etc.
Most new home buyers go with the production home builder, but should still research the builders for capabilities, quality, and potential problems other buyers have faced with a particular builder. An online search of "selecting a builder" provides hundreds of sites that provide advice on the who, what, where, and why of choosing your builder. One of the best guides I found was actually on a mortgage web site: They point out several characteristics to investigate when selecting a builder.

1. Reputation. Look over the builder's reputation from it's client list.

2. Consider location. Make sure they actually build in your area regularly as some localities have intricate laws that a builder not from the area may miss, and cost you money.

3. Type of Home. Do they build what you're wanting? Go with a builder who has built the style and design you're desiring.

4. Compatibility. Frankly, do you "click" with the builder's personality? It's going to be a long, arduous process so make sure you actually like the people involved.

5. Warranties. Your builder should be willing and able, to offer standardized warranties on your home.

6. Financial stability. If it's going to take a year or more to build your house, will the builder still be in business?

7. Financial strength. Yes, they're stable, but can they weather the ups and downs of the local economy? Will they be around in a couple of years when you may have questions about the construction?

To begin your search, there are two primary web sites to start with: and is the site operated by the folks who created and other large real estate web sites. There's a search engine for locating builders, which provides ad-driven content. A challenge I had was searching for one in my Springfield, Virgina area, involved sorting through the results for builders in neighboring states (several miles away). Nevertheless, there's plenty of consumer-oriented content and connections with builders., is the official web site of the National Association of Home Builders in Washington, D.C. It contains both consumer and member-only content, however, it's list of builders is very extensive. Using NAHB requires a few extra steps however, the resulting data is well worth the trial of clicking a few more times. To find a builder in your area, follow some simple steps:


Click Home Building Process

Click Find Your Local Builders Association

Supply either the state or zip-code for the area you're interested in. Simply put, this is the easiest way to locate the names and contact information of builders in your area.

Published: February 18, 2005

Saturday, February 12, 2005

Uncle Sam Provides Helping Hand With Down Payment Savings

Don't file your taxes too quickly before finding out what you can get back from Uncle Sam to help you save for your down payment. There's more available to you for increasing your tax refund than just your basic personal deductions. Tax credits can be another way to increase your refund or create one altogether that can inject more bucks into your savings account.

"Thousands of people every year pass up millions of dollars because they don't know they can take advantage of some or all of the credits" available to them, according to the U.S. Housing and Urban Development's website.

As you prepare your Form 1040, be sure to look over the credits below to see if you can increase your personal bottom line:

Earned Income Tax Credit

Last year, more than 21 million taxpayers raked in a boat load of money ($36 billion) through the Earned Income Tax Credit (EITC), a.k.a., Earned Income Credit (EIC). This credit can create a refund boon for low-income working individuals and families. Originally put in the tax code in 1975, the EITC was created to offset the burden of social security taxes and to provide an incentive to work. The IRS says when the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.

To find out if you qualify, visit and take advantage of the EITC Assistant.

The very basic requirements include:

Must have earned income

Must have a valid Social Security Number

Investment income is limited to $2,650

Filing status cannot be "married filing separately"

Generally must be a U.S. citizen or resident alien all year

Cannot be a qualifying child of another person

Cannot file Form 2555 or 2555-EZ (related to foreign earn income)
When you consider the average taxpayer using the EITC was able to pull in about $1,714, that's a good chunk of change for your down payment savings account.

Child Tax Credit

Having children has never been more financially beneficial when it comes to tax deductions. Not only do the tikes count for a deduction as a dependent (2004 amount is $3,100 each, according to, you may also be able to claim a child tax credit for each child that qualifies. For 2004, the maximum amount of the credit is $1,000 for each qualifying child. Here are the stipulations for a qualifying child:

Is claimed as your dependent,

Was under age 17 at the end of 2004,

Is (a) your son, daughter, adopted child, stepchild, or a descendant of any of them; or (b) is your brother, sister, stepbrother, stepsister, or a descendant of any of them whom you care for as you would your own child; or (c) is an eligible foster child, and

Is a U.S. citizen or resident.
As you can see -- here's another area that could put more money into your down payment account. Check with your tax professional to see if you qualify for these deductions and credits.

Individual Development Accounts

You can use an Individual Development Account (IDA) to save towards the purchase or repair of a home, or to pay off a long-term debt. Some companies have partnered with IDA provider to help their employees to make matching contributions.

A list of IDA groups can be found at the IDA Network. The search directory is operated by the Corporation for Enterprise Development in Washington, DC. CED explains that an IDA is a tool to "enable low-income American families to save, build assets, and enter the financial mainstream. IDAs reward the monthly savings of working-poor families who are trying to buy their first home, pay for post-secondary education, or start a small business."

The incentive to the individual saving in an IDA is through the use of matching funds that typically come from a variety of private and public sources. It's like a 401(k) for homeownership.

Published: February 11, 2005

Saturday, February 05, 2005

Disclosure Name Of The Game In Buying

Even before you sign a contract in real estate, you'll be asked to pen your John Hancock on several forms in duplicate and triplicate before you can even see one piece of property. In a litigious society, it has become necessary for real estate professionals and residual service providers to let you know about everything before you can do anything. Some of the forms are required by state edict, while others have arisen out of sheer necessity because of what's happening in the marketplace.

The latter creeps up mostly in a sellers market when buyers begin to make choices that may backfire later, i.e., no home inspection, escalating offers, eliminating appraisals, etc. The disclosure form or memo of notice, verifies for the agent that they warned the buyer of what might happen -- so that in case it does, they have escaped liability and the buyer stews in his own decision.

U.S. Legal Forms, Inc. states that "over 30 states require that a disclosure form be provided by the Seller to the Buyer as part of the real estate sales transaction. Other States use a disclosure form although not required." The libertarian side of my psyche screams "Stop the madness," while my corporate side says, "Prevent the liability."

Here are several of the disclosures you'll be looking at when you get across from your Realtor or loan officer:

Agency Disclosure. This disclosure form reveals to the buyer/seller/landlord/tenant who the subject agent works for. Most states have this form and sometimes you'll first have to sign a disclosure form saying that the agent has gone over the disclosure forms BEFORE you even sign the disclosure form itself. (This is the madness part I was talking about.) The bureaucrats have even provided a line on some forms where the agent can sign saying that while s/he disclosed it to the potential buyer, the person refused to sign the disclosure form. Sheesh.

Residential Property Disclosure. This form is referred by several names (property disclosure, residential disclosure, seller disclosure, etc.). They all disclose to the buyer information about the property. The form may include information about the home systems, possible basement problems, environmental and structural issues. In some states, however, you may see a Property Disclaimer form with the home package, meaning the seller makes no guarantees or promises about the house -- and then you'll want to get a home inspection instead.

RESPA Disclosure. RESPA is the Real Estate Settlement Procedures Act, which protects consumers from slight of hand and under the table expenses. HSH Financial Publishers reports there are several items a mortgage lender must provide to a borrower when the application is made:

A Special Information Booklet, which contains consumer information regarding various real estate settlement services. (Required for purchase transactions only).

A Good Faith Estimate (GFE) of settlement costs, which lists the charges the buyer is likely to pay at settlement. This is only an estimate and the actual charges may differ. If a lender requires the borrower to use of a particular settlement provider, then the lender must disclose this requirement on the GFE.

A Mortgage Servicing Disclosure Statement, which discloses to the borrower whether the lender intends to service the loan or transfer it to another lender. It also provides information about complaint resolution.
Lead-Based Paint Disclosure. This form is for housing built before 1978, when most paint included lead as part of the ingredients. This is a federally-required disclosure and must be included in all older homes.

Local disclosure. This one is the jackpot of all disclosure forms. They can be required by the smallest of jurisdictions, which is why you want to work with a real estate professional who can keep you away from the pitfalls. This may include disclosure of airport locations, public facilities, local building code issues, etc. The local Realtor association keeps close tabs on local disclosure requirements and places or replaces required disclosure forms in its inventory when necessary.

Published: February 4, 2005

Gay Community Plans May Violate Fair Housing

Associated Press reported last week that gay activists in Spokane, Wash., "are planning to create a neighborhood of gay-oriented homes, businesses and nightlife -- a development religious conservatives contend would clash with Spokane's family-centered culture." While the activists may want to celebrate their uniqueness and pride, setting up a community to specifically feature one class of homeowners over another, may violate the Fair Housing Act.

Title VIII of the Civil Rights Act of 1968 (Fair Housing Act), "prohibits discrimination in the sale, rental, and financing of dwellings, and in other housing-related transactions, based on race, color, national origin, religion, sex, familial status (including children under the age of 18 living with parents of legal custodians, pregnant women, and people securing custody of children under the age of 18), and handicap (disability)," according to the U.S. Department of Housing and Urban Development.

At first reading, most students in my Fair Housing class immediately point to "minorities" as the groups that make up the protected classes under the above legislation. In reality, everyone is part of a protected class -- race, color, national origin, religion, sex, familial status -- all depict some sort of characteristic of every person on the planet. The only nationally protected class that is unique to a smaller segment of society is the disability classification.

Since Spokane's Human Rights commission's mission includes the promotion and securing of mutual understanding and "respect among all people regardless of … affectional/sexual orientation…" among other classes, then a gay district, while possibly promoting diversity in some larger sense, smacks of exclusivity and preference when it tries to exclude or prefer one sexual orientation (homosexual) over another. Such a show of preference for one class of buyers over another could elude to discrimination.

While most consumers understand the concept of not discriminating "against" a certain class, fair housing laws tout the concept of not showing "preference" for certain classes, as well.

Several years ago the Washington City Paper in Washington, D.C., was accused by the Fair Housing Council of Greater Washington of publishing the following (allegedly discriminatory) ads: "gay female seeking another gay female to share a house;" "housemate needed, no pets, no Republicans;" "women-of-color group home seeking a new member;" and "Jewish cooperative home starting." The idea behind showing preference for a certain class, the Council contended, was as illegal as discriminating against a particular group.

In a column written about the case, Colorado State Senator and majority leader Mark Hillman-R, contended such policing by housing advocacy groups and HUD "defies common sense and desecrates the Constitution," arguing that such enforcement occurs "when government leaps from prohibiting certain obviously nefarious discrimination to prohibiting discrimination which is sensible or harmless…" But that assumes that some types of discrimination are acceptable -- and as the law goes, they are. In most jurisdictions there are no laws prohibiting discrimination based on filthiness, for instance, or other socially unacceptable habits.

The District enjoys a much larger group of protected classes, including political affiliation, sexual orientation, matriculation, and personal appearance to name a few, in addition to the seven national protected classes.

Since sexual preference or orientation is not deemed a protected class on the national level, the gay activists' plans to develop such a community may not violate federal law. Nevertheless, developing a community for the enjoyment of one group over another could present a legal, if not regulatory, problem when it comes to local and state-wide fair housing laws.

To demonstrate how this might be an issue for the development company, imagine if the Associated Press lead paragraph had begun like this: "White activists in Spokane, Wash., are planning to create a neighborhood of white-only homes, businesses and nightlife …." In today's American culture, such a community would be considered ill-conceived at best, and repulsive by most who believe in the American ideal of homeownership. The Fair Housing laws are color blind -- nowhere does it mention a specific color.

By using an extreme example, most will understand that minority groups aren't the only ones who can be discriminated against and that the majority groups -- in this case whites -- are not the only group that can practice discrimination. In the fair housing arena -- there is no room for showing preference for one group and prohibiting or even making it difficult for another group to join in on the privilege of homeownership.


U.S. Department of Housing and Urban Development
National Fair Housing Advocate Online
National Association of Realtors

Published: January 28, 2005

More Than One Way To Determine Fair Market Value

What is the fair market value (FMV) of your home? The quick and easy answer is: whatever a seller can get a buyer to pay for it. When real estate agents vie for a listing, they will present comparative market analyses (CMA) to help the seller determine a fair price. The CMA helps determine an asking price, but the real value of a house is the final price paid by the buyer. An appraiser determines a home's value compared to other area sales of that particular home style and the lenders will base their loan amounts on those appraisals.

Meanwhile, there are three ways of determining the value of a property when it comes to putting your home on the market: the CMA, square footage value and tax assessment formulae.

The CMA is by far the most popular means used by agents. It's a straight forward way of determining value and works best in a subdivision environment where additions or alterations on the homes have not created an eclectic housing environment. If you have four or five basic models in the community, it's a relatively straight forward process to derive an asking price.

For instance, if the New Squire model (4 bedrooms, 2 baths, carport on a quarter-acre lot) is selling for an average of $315,000 then that's probably the best price or value you'll be able to determine for your property. If the market is heading upward or downward, you may need to talk with your agent to determine which way to lead your asking price.

The challenge with this pricing model occurs when the community ages and owners begin to close in carports, bump out and up the space, finish basements and alter the original floor plans of the houses. Once that happens, the agent has to investigate further to determine if the New Squire models that sold for $315,000, $320,000 and $325,000 last month indeed had the same floor plan, amenities and features, to provide an apples to apples comparison.

When the homes no longer resemble the original construction or you live in a community that is not a subdivision, then you'll need to look at the average price per square foot. The agent researches all the aspects of your property and constructs a list of homes comparable to your home throughout the area to arrive at an average cost per square foot.

Thus, while you're looking at homes in neighboring subdivisions or communities, the square footage for a particular style of home can be determined -- then you would multiply your square footage by that factor.

For example: your 1,600-square-foot ranch home in the community averages $125 per square foot, thus the asking price would be $200,000. Again -- all the factors of the community, amenities and features would be taken into account to make sure the comparison is true -- so that the ranch homes you're comparing also have the same number of bedrooms, baths, fireplaces, decking, etc. Obviously, not all ranches in your community are created equal and these disparate conditions and locations would have to be taken into account.

When I priced a golf course home with two levels, I had to take into account the owner also had installed a genuine wine cellar, a two-level living room with automatic drape openers, a three-car garage, and a completely new addition for a game room and extra guest bedroom suite. There were no homes in the neighborhood to match this target property. I had to find homes in the neighboring communities on golf courses to determine a price.

It's when you run into this type of problem that you would want to consider a tax assessment means of determining price/value.

The good thing about this methodology is that it doesn't matter what type of amenities, square footage or model of home you have, the formula works throughout the neighborhood or community.

In essence you take the average tax assessment of a community and the average sales price in the community divided into each other to determine a multiple factor. For instance, if the last 10 sales in the community averaged $312,000 and the average tax assessment equaled $275,000, then you would divide the sale price by the tax assessment to determine your multiplier -- which would be 1.13.

Thus, take the tax assessment of any target home in the neighborhood and use the 1.13 multiplier to determine the fair market value, e.g., a tax assessment of $175,000 would result in an asking price of $197,750.

These three methods are obviously very simplified for the space in this column; however, they provide you with an idea of how to determine FMV for your property (for rough estimates). The best way to determine value, of course, is by using the professionals.

Published: January 21, 2005