Monday, June 29, 2009

Lessons Learned

Now that we've moved into the new house with newly chipped glazing and newly scuffed/gouged paintwork, I thought I'd offer some lessons learned from our experience in buying our home, with the understanding that we made our purchase in a market where mortgage rates had hit record lows.

Know the market

DC's market is segmented by quadrant, zip code, neighborhood, and price range. For example, we were looking for a place with a minimum 2 bedrooms in NW DC, preferably not a fixer upper. I searched in zip codes 20005, 20007, 20008, 20009, 20011, 20015, and 20016. The magic number appeared to be $600K: below it, condos; above it, rowhouses or semi-/detached housing. Detached homes generally started in the $700s, although there were a few in the mid to upper $600s.

I know people are waiting for home prices to fall. I did. However, understand that not all homes are alike. My experience was that condo prices are falling; wait and see is probably a good strategy. For single family homes, I found that if it's priced right and in move in condition, it'll sell in a week at list price. Homes with problems - original 1930s kitchen, oddly flowing rooms - will sell, but not at the original list price and they'll take longer to sell.

But, I never met anyone who simply wanted to give away their house. Base your offer on your estimate of the home's market value, not on some "always offer 20% less than asking price" rule your old Uncle T-John used to tout.

Condos are Challenged

The main problem I had with condos, size and design aside, was the condo fee. I can't possibly imagine facing a non-deductible, open-ended [in the sense that it could increase ad infinitum] monthly fee ranging from $500-800/month on top of my monthly note. If I can swing a note and that fee, then maybe I can afford a house. I have to believe many buyers are turned off when they discover the beautiful condo fee attached to the gorgeous condo.

And then there are the poor folks in these massive complexes in the Cathedral/Mass Ave area whose units are reasonably priced, but carry monthly fees in excess of $2000.

Get Data

You can never get too much information. Use all the internet resources available. I relied heavily upon FranklyMLS.com, Redfin, and Sawbuckrealty.com to understand current price trends, to track specific properties, and to be alerted when new properties hit/left the market or took pricing actions. FranklyMLS.com rocked: I could slice/dice the data any way I wanted and the email alerts were very handy.

Money

Talk to a loan officer before you start your search, before you talk to a real estate agent. Know what you can truly afford and what your options are.

You gotta have cash. The days of second mortgages are gone for a while so you must be able to put at least 10% down. When I applied for a mortgage, second mortgages were out of the question - the market had dried up. And don't forget that you'll still need cash for closing; I was told to expect closing costs equal to about 3% of the transaction value.

Which leads to seller subsidy! Talk to your real estate agent, it may be a way to get the seller to help pay for your closing costs. Include it in your pricing strategy.

Know what you can borrow and what it's going to cost you. Your credit score really does dictate your options.

Find out if you can get lender paid mortgage insurance; my loan officer suggested it and although it cost me a few points on the front-end, it's saving me thousands in PMI every year.

It's a business transaction

Buying a home can be an emotionally trying time. However, you have to drop the emotion or you'll make bad decisions. Treat the purchase as a business transaction. Develop a pricing strategy and set limits before you look. Know the property's comparables before you make an offer. Be willing to walk. When I bought my home in Dallas, I walked away from the deal when the sellers became too intransigent after I'd conceded on almost every point of their counter. They were shocked when I walked, they were scolded by their agent, they conceded on the "walking" point, and I got the house.

Which also leads to: it's about getting the house, not putting the screws to someone. Win-win, good; win-lose, no deal.

Ignore the drapes

You're buying a house, not the seller's furniture, art, and drapery. You have to turn a blind eye to it - look at the room sizes, the flow of the house, and its condition. That brown bathtub - it can be replaced. That pink bathroom - it can be reglazed and re-equipped for less than $2500. That cranberry dining room - it can be repainted. That awful furniture - it'll be gone once the seller leaves. I didn't care for the house we bought when I first saw it. When I saw it the second time, I realized it was a solid house, all the problems were cosmetic and easily fixable. The home's true value was that it offered a relatively low entry price into a desireable neighborhood. If I have to paint a bathroom "Belgian Sweet" to get that, show me the roller!

Other stuff

Know that reported sales data may not be telling the entire story. Seller subsidies result in overstated market pricing data. In other words, a home that's recorded as selling at $700K may actually have sold for $650K with a seller subsidy of $50K. The home's true market value is $650K, the rest was necessary to seal the deal.

When you write a contract, for any event that must occur within a set number of days, specify "business days", e.g., "15 business days." Better to be specific than not. One part of my transaction - the appraisal - took an inordinately long time and we blew past the 15 day limit. While my agent said not to worry, I worried thanks to the Dallas couple I'd dealt with in 1993.

Don't assume your real estate agent or loan officer is tracking your transaction's progress once it's gone to contract. You have to manage it and stay on top of it.

Don't assume that the loan documents are error free. Read them and question anything that doesn't seem right. Are recordation fees included in the Good Faith Estimate (GFE)? What about escrow amounts? Don't be afraid to ask questions.

Good luck!

Friday, June 26, 2009

Moving Day!

This is it! We move to the new house Saturday.

In the past three weeks, everything on the task list for June has been accomplished:

  • PMP: passed.
  • Floors: refinished.
  • Door locks: changed.
  • Window sash locks: installed.
  • Painting: completed except for one bathroom.
  • Pink toilet and sink: removed and recycled.
  • Yellow toilet and sink: removed and recycled.
  • Granite countertops: installed.
  • Pink tile and tub: reglazed and then chipped by the painter's crew.
  • New neighbors: met.
  • Soon to be former neighbors: addresses exchanged.
  • Rental house close out: scheduled.
  • Comcast: don't ask.
  • Partner's grandkids: welcomed to DC with kisses and loving arms.
  • Job: kept [so far].

And somehow, our relationship remains intact.

I'm ready for the beach!

Thursday, June 11, 2009

MRIS May 2009 Sales Report: Preliminary data

OK. I've closed on the house, the floors have been redone, and hopefully the rest of the interior touch up will be completed by the end of next week. And let me tell you, preparing for the PMP test isn't a walk in Logan Circle, either.

MRIS released May's data for sales of existing homes in the District yesterday. Key points [YoY]:

  • Dollar volume collapsed, down 21.3%
  • Average price is down 13.34%, median is down 10.24%
  • Unit sales volume [aggregate] down 9.19%
  • Home unit sales eked a small gain, up 2.67%
  • Condo unit sales tanked, down 20.66%

Sales prices were 91.4% of list, about the same as April. Based on my recent experience, without having access to real MRIS data there's no way to tell how omitting seller subsidies would affect this statistic, i.e., it could be much lower, ditto average/median sales price. At May's sales rate, the condo market has a 8.1 month supply listed for sale, homes 7.2 months.

Analysis forthcoming.

Sunday, June 07, 2009

Adieu, indeed

I received this friendly, positive comment from Arcticrose today:

I am moving out of DC all together! This city has unrealistic prices, very horrible weather and lots of crime.

I am going back to southern France. Enjoy your muggy summers.

Adieu :)

Yeah, you bet. Real estate prices in Paris are extremely reasonable, the weather there is reminiscent of a tropical paradise, and there are no prisons in France [surely this article is a work of fiction].

I speak four languages: English, Texan, New Orleanian, and French (a little). Since Articrose is obviously not fluent in English, I'll communicate my response in the other three:

  • New Orleanian: Bitter, table for one!
  • French: Il n'y a ni l'hiver ni la pluie ni l'humidité au sud de la France? C'est incroyable, ça. Mais je pense qu'il y a plus d'ignorance maintenant.
  • Texan: Don't let the door hit you on the way out, pardner!

Tuesday, June 02, 2009

Setting expectations

My parents recently celebrated their 51st wedding anniversary. When asked the secret to their marriage's longevity, my mother replied, "Low expectations!" My partner has taken that comment to heart [we celebrate 25 years in August].

So, to set your expectations appropriately, I have a busy June ahead of me:

  • I close on my house Friday.
  • I'll then be hiring painters, floor finishers, reglazers, countertop folks, plumbers, and locksmiths to touch the place up before we move in.
  • Until we move in, I'll be acting as de facto general contractor, managing all those folks I listed above.
  • I go to Savannah, GA for a family reunion.
  • I study for and [hopefully] pass the PMI PMP test.
  • Occasionally I'll go to work.
  • And then we move to the new house!

So forgive me if I don't update as frequently as I have in the past. Rest assured, I've collected and processed sales data and, when the storm passes, will post it here.

Wish me luck!