Timing Your Home Closing
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CLOSING TIME
End of the month? The Beginning? Experts weigh in on the right time to make your move
BY CHARLES SCUTT
CTW Features
My Area is Great, but the Local Market is a Bust. Was Buying a Bad Choice?
Q: I just bought a two-bedroom, twobath condo built in 1985. The area is great, but I’m now learning about the local real estate bust. I’m not sure I made a good investment. I bought the property for $170,000 with no money down. It’s now available for rent for $850 a month but my monthly cost is $1,300. Did I make the right decision?
iStock Photo
M
A: You seem to have “buyer’s remorse,” a common condition after purchasing real estate and one that typically is unwarranted. In your case, however, there may be good cause for concern. The slowing real estate “Buyer’s remorse” market hardly is a secret. There should be nothing to a common condition learn and no surprises after purchasing because news coverage regarding housing trends is real estate extensive.As an investor, you have an obligation to read the local newspaper each day because area housing patterns can powerfully impact area property values. You have a cash loss of $450 a month ($1,300 less $850), but what is your loss after taxes? If you cannot afford a $450 cash loss each month how do you propose to keep the property? By any chance, have you financed with an “option adjustable-rate mortgage” or interest-only financing? Are you making only minimum payments? What will your monthly payment be for each of the next six years, assuming interest costs do not rise? You have made an investment with no money down, the holy grail of late-night television barkers and seminar sellers. But the point of real estate investing is not merely to acquire property, it’s to make money. How will you do that with a yearly shortfall of $5,400? You might be able to justify the yearly cash losses if you can afford them and if property values are rising. In effect, the annual loss is really just a deferred cost of acquisition. However, you say the local market is a “bust,” an expression that does not suggest a lot of appreciation, if any. You need to determine if you have a sustainable investment. If not, it may be better to sell at a loss now then face a bigger loss in the future. For specifics, sit down with several local real estate brokers who handle investment property. Also, speak with a CPA, enrolled agent or a tax attorney to
See ASK OUR BROKER, Page 2
any buyers in the process of purchasing a home like to keep as close an eye on their calendar as they do their bank account. That’s because the time of the month your transaction closes can have its financial advantages and disadvantages – at least in terms of your mortgage. First, it’s important to understand that interest on your mortgage begins accruing from the date your home purchase closes. Most mortgage loans, however, are due on the first day of the month.At closing, you prepay the principal, interest, taxes and insurance between the date of closing and the last day of the month (the vast majority of this prepayment almost always goes toward mortgage interest). If you close on Jan. 30, for instance, you are responsible for prepaying one day of PITI to cover the remainder of January. In this example, March 1 would be the due date of your first monthly mortgage payment. “If a buyer is feeling low on cash and is concerned with the amount of money that needs to be provided at the time of closing, I would suggest closing at the end of the month,” says Tyler Nevenner, a Realtor with Kirkham and Friends Real Estate, Salt Lake City. “This is particularly good for a buyer who is putting no money down and has very little
See CLOSING TIME Page 2
Cutting Red Tape to Make Building Green Easier
BY PAUL ROGERS
CTW Features IN THE PAST, EVEN KERMIT the frog would have a difficult time being “green” when it came to remodeling his pad or building an environmentally responsible home. No more. “The green building material market has a lot of strength and is finding a more mainstream audience,” says Abby Mages, cofounder and one of the original owners of Environmental Building Supply, Portland, Ore., a home-improvement retailer. She should know: EBS’s sales growth – 20 to 30 percent annually for the last five years – has mirrored the booming popularity and rising availability of green building products.To expand offerings and offer an even fuller in-stock inventory, the company this past summer merged with Seattle-based Environmental Home Center. To fill EBS, EHC and other retailer shelves, building supply manufacturers accelerated the development of environmentally sound building materials and are rolling out an ever-increasing roster of products.You name the remodeling need and most likely there is a green alternative to fit the task. “We have always had a lot of strength in floor coverings and finishes. People tend to go for green materials where they can
See BUILDING GREEN Page 2
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CONTINUED FROM PAGE 1 see them versus in a wall that’s closed up,” Mages says. One of EBS’s most popular newer products is a natural earth plaster called American Clay from American Clay Enterprises, Albuquerque, N.M.The product, made using a low-energy, lowwaste process, can be colored with natural pigments, so no painting is necessary.And clay naturally controls climate by absorbing and releasing moisture as the environment changes, says Mages. Much green building material activity revolves around products that purport to create a healthier indoor environment, particularly low- and zero-VOC paints, adhesives and caulks but also products that replace PVC or vinyl, and products without phthalate plasticizers, brominated flame retardants and fluoropolymers. “These are compounds that most people had never heard of a few years ago, but that are raising serious concerns in scientific circles,” says Alex Wilson, author of “Your Green Home” (New Society, 2006), executive editor of Environmental Building News and founder of BuildingGreen
Inc., Brattleboro,Vt. Some of this year’s best new green products are formaldehydefree panels (particleboard, medium-density fiberboard, hardwood plywood) and water-conserving fixtures and appliances, according to Wilson. Formaldehyde was reclassified in 2004 as a “known human carcinogen” by the International Agency for Research on Cancer, and California is expected to adopt stringent regulations that will, within a few years, eliminate panel products made with ureaformaldehyde binders, says Wilson. Portland, Ore.-based Columbia Forest Products Inc., North America’s largest producer of hardwood plywood, is leading alternative development with a soy-based binder. On the water-conservation front,Wilson points to the new generation of horizontal-axis (front-loading) clothes washers and dual-flush toilets (both available from multiple manufacturers), low-water-use (about 1 gallon per flush) pressure-assist toilets using flush mechanisms from Sloan Valve Co., Franklin Park, Ill., and Chicago-based Delta Faucet Co.’s new 1.6-gallon-per-minute showerhead with H2Okinetic technology, which provides a drenching, large-droplet shower while saving water. The list of green products goes on and on, from structural insulated panels (foam sandwiched between layers of particle board)
to cork flooring and carpeting. (“Significant innovation has been happening in the carpet industry, where new green product lines are being introduced all the time,” says Wilson.) But the flood of green is not without its problems. There is no firm definition for a green product. Organizations are working to outline what is and isn’t green, but no single, simple classification system exists. No hard rules. In general, a green product is one that – to one degree or another – conserves energy and/or water, contributes to a healthy home environment (by improving air quality, for example), protects natural resources and is affordable (based on life-cycle costs). But it’s not an exact science. In wood, for example, debate continues over which agency is the best to certify sustainably harvested lumber – although both Mages and Wilson believe the Forest Stewardship Council runs one of the most robust programs to promote responsible forest management. (Visit www.certifiedwood.org and specify FSC-certification using the “certified product” search tool to find a supplier.) But … “So-called ‘greenwashing’ happens more and more frequently, as manufacturers exaggerate environmental claims about their products to appeal to the growing demand for green building products,” says Wilson. “As green building has become
bigger business, this problem has worsened.” Wilson has addressed it by compiling the directories Green Building Products and GreenSpec. Manufacturers do not pay to be listed in either, and neither carries advertising (visit BuildingGreen.com). “Independent, third-party certification of environmental claims is very important,” he says. What sometimes slips through the cracks in finding and using green materials is their performance.A toilet that uses less water for a year then breaks down and requires a replacement may not be so environmentally friendly after all. One green product that has boomed in recent years has been bamboo floors. But more than one source has expressed disappointment in the performance of bamboo.A lot depends on the manufacturer, but bamboo in general does not distress “gracefully,” says Mages. People not only want to be more environmentally responsible, she says,“they want performance; they want something that ages well.” With the abundance of green products now on the market, it is now easier than ever to find both.
Ask Our Broker
CONTINUED FROM PAGE 1
review your tax and write-off situation. Consumer Notice:The federal government has issued an important mortgage information guide regarding “nontraditional” mortgages – the government’s term for potentially toxic loans, financing with tiny payments up front and then huge payments after “start” periods end.The credit-resource pamphlet “Interest-Only Mortgage Payments and PaymentOption ARMs – Are They For You?” contains important questions, examples and forms that borrowers should review before considering these increasingly-popular loan formats. The guide can be found online at www.occ.gov/ftp/consumer/charmbrochure.pdf.
Q: What does a real estate broker do? A: A real estate broker traditionally is described as someone who, for a fee, helps another buy, sell or manage real estate. In effect, a broker is an “agent” of a “principal” or “client.”As an agent, a broker has obligations to clients such as care, obedience, accountability and loyalty. In some jurisdictions, however, brokers may not function within the traditional definition. For instance, you may find a “transactional” broker, someone who brings buyers and sellers together. Or, you may encounter a “disclosed dual agent,” someone who represents both buyer and seller with their advance approval. A real estate salesperson or associate broker works under the authority of a broker. Only a broker may enter into contracts with the public or collect a real estate commission. The commission paid to the broker is then divided with salespeople or associate brokers on a negotiated basis. Real estate licenses are awarded by state and provincial governments upon the completion of certain educational requirements.The term “Realtor” defines a real estate licensee who is a member of the National Association of Realtors. It’s important to know whom a real estate professional represents. Most jurisdictions now require brokers to provide detailed disclosure forms to both prospective clients and customers.These forms are important because they explain whether or not the broker represents your interests. Brokers can represent sellers as listing brokers, purchasers as buyer brokers and both as disclosed or “designated” dual agents.The terms of listing agreements and buyer brokerage contracts are entirely negotiable.There are no fees or commission rates set by law or regulation. Given the complexity of real estate transactions, and given the money involved, both buyers and sellers should use experienced, competent real estate professionals when buying or selling property.
© CTW Features
Need real estate advice? Peter G. Miller, author of “The Common-Sense Mortgage,” would love to hear from you. Send your questions to [email protected].
© CTW Features
CLOSING TIME How much do you want to put up front?
CONTINUED FROM PAGE 1 savings,” says Staci Mintz, a Realtor with Pinnacle Estate Properties, a real estate brokerage firm located in Encino, Calif.“Their out-ofpocket, up-front expenses are lessened.” By closing at or near the end of the month,“many buyers feel as though they are receiving a free month of housing,” says Patricia Leon, CEO of RELO Direct, a fullservice relocation company headquartered in Chicago. However, if the buyer closed in the middle of the month, they would be required to pay the PITI from the
15th through the 31st of that month. “Granted, they would not have a payment due for another 30 days, but they would be required to have more cash at closing than if they closed at the end of the month,” Leon says. On the other hand, closing at the start of the month can have its plusses, too, says Mintz. If you closed on March 2, for example, your first payment would not be due until May 1: 60 days later.You would be responsible, however, for prepaying 29 days of PITI at closing. What’s more,“if a buyer closes near the first of the month, even though they will be charged PITI for the entire month – making their costs at closing a little bit more expensive – it allows them to get into their home sooner and start the decorating process,” says
Nevenner. In the long run, it doesn’t really make a difference when you close, says Mintz.“But some people like to save their initial out-ofpocket expenses to pay for costs associated with moving or unforeseen expenses that may come up associated with their new real estate purchase.” In the current housing market that favors buyers, concerns about the time of the month to close are less worrisome, considering that buyers typically have more leverage today to ask sellers to pick up the tab on some or all of their closing costs and PITI prepaids. Ultimately, the scheduling of your closing may be out of your hands anyway, so it’s best not to fret about it, says Mintz. “Even when you want to, it can be hard to accurately time the
close of an escrow,” Mintz says. “There are many things that can cause the close to be a few days late or even a little longer.There are title searches, inspections, escrow officers’ schedules, plus the lender that has to approve and fund the loan.These people are all human and have to work together.” “The timing of a closing is all about cash outlay,” adds Leon. “There is no cost differential dependent on the day of closing – it’s all about how much money you need to bring to closing. Interest is charged for every day that the loan is outstanding, so at the end of the day, buyers and sellers have ultimately paid the same amount of money for their housing.”
© CTW Features
AD / SPONSORSHIP
AD / SPONSORSHIP
Make the most of your home investment
Ask Our Broker
CLOSING TIME
End of the month? The Beginning? Experts weigh in on the right time to make your move
BY CHARLES SCUTT
CTW Features
My Area is Great, but the Local Market is a Bust. Was Buying a Bad Choice?
Q: I just bought a two-bedroom, twobath condo built in 1985. The area is great, but I’m now learning about the local real estate bust. I’m not sure I made a good investment. I bought the property for $170,000 with no money down. It’s now available for rent for $850 a month but my monthly cost is $1,300. Did I make the right decision?
iStock Photo
M
A: You seem to have “buyer’s remorse,” a common condition after purchasing real estate and one that typically is unwarranted. In your case, however, there may be good cause for concern. The slowing real estate “Buyer’s remorse” market hardly is a secret. There should be nothing to a common condition learn and no surprises after purchasing because news coverage regarding housing trends is real estate extensive.As an investor, you have an obligation to read the local newspaper each day because area housing patterns can powerfully impact area property values. You have a cash loss of $450 a month ($1,300 less $850), but what is your loss after taxes? If you cannot afford a $450 cash loss each month how do you propose to keep the property? By any chance, have you financed with an “option adjustable-rate mortgage” or interest-only financing? Are you making only minimum payments? What will your monthly payment be for each of the next six years, assuming interest costs do not rise? You have made an investment with no money down, the holy grail of late-night television barkers and seminar sellers. But the point of real estate investing is not merely to acquire property, it’s to make money. How will you do that with a yearly shortfall of $5,400? You might be able to justify the yearly cash losses if you can afford them and if property values are rising. In effect, the annual loss is really just a deferred cost of acquisition. However, you say the local market is a “bust,” an expression that does not suggest a lot of appreciation, if any. You need to determine if you have a sustainable investment. If not, it may be better to sell at a loss now then face a bigger loss in the future. For specifics, sit down with several local real estate brokers who handle investment property. Also, speak with a CPA, enrolled agent or a tax attorney to
See ASK OUR BROKER, Page 2
any buyers in the process of purchasing a home like to keep as close an eye on their calendar as they do their bank account. That’s because the time of the month your transaction closes can have its financial advantages and disadvantages – at least in terms of your mortgage. First, it’s important to understand that interest on your mortgage begins accruing from the date your home purchase closes. Most mortgage loans, however, are due on the first day of the month.At closing, you prepay the principal, interest, taxes and insurance between the date of closing and the last day of the month (the vast majority of this prepayment almost always goes toward mortgage interest). If you close on Jan. 30, for instance, you are responsible for prepaying one day of PITI to cover the remainder of January. In this example, March 1 would be the due date of your first monthly mortgage payment. “If a buyer is feeling low on cash and is concerned with the amount of money that needs to be provided at the time of closing, I would suggest closing at the end of the month,” says Tyler Nevenner, a Realtor with Kirkham and Friends Real Estate, Salt Lake City. “This is particularly good for a buyer who is putting no money down and has very little
See CLOSING TIME Page 2
Cutting Red Tape to Make Building Green Easier
BY PAUL ROGERS
CTW Features IN THE PAST, EVEN KERMIT the frog would have a difficult time being “green” when it came to remodeling his pad or building an environmentally responsible home. No more. “The green building material market has a lot of strength and is finding a more mainstream audience,” says Abby Mages, cofounder and one of the original owners of Environmental Building Supply, Portland, Ore., a home-improvement retailer. She should know: EBS’s sales growth – 20 to 30 percent annually for the last five years – has mirrored the booming popularity and rising availability of green building products.To expand offerings and offer an even fuller in-stock inventory, the company this past summer merged with Seattle-based Environmental Home Center. To fill EBS, EHC and other retailer shelves, building supply manufacturers accelerated the development of environmentally sound building materials and are rolling out an ever-increasing roster of products.You name the remodeling need and most likely there is a green alternative to fit the task. “We have always had a lot of strength in floor coverings and finishes. People tend to go for green materials where they can
See BUILDING GREEN Page 2
AD / SPONSORSHIP
BUILDING GREEN It’s never been easier than right now
CONTINUED FROM PAGE 1 see them versus in a wall that’s closed up,” Mages says. One of EBS’s most popular newer products is a natural earth plaster called American Clay from American Clay Enterprises, Albuquerque, N.M.The product, made using a low-energy, lowwaste process, can be colored with natural pigments, so no painting is necessary.And clay naturally controls climate by absorbing and releasing moisture as the environment changes, says Mages. Much green building material activity revolves around products that purport to create a healthier indoor environment, particularly low- and zero-VOC paints, adhesives and caulks but also products that replace PVC or vinyl, and products without phthalate plasticizers, brominated flame retardants and fluoropolymers. “These are compounds that most people had never heard of a few years ago, but that are raising serious concerns in scientific circles,” says Alex Wilson, author of “Your Green Home” (New Society, 2006), executive editor of Environmental Building News and founder of BuildingGreen
Inc., Brattleboro,Vt. Some of this year’s best new green products are formaldehydefree panels (particleboard, medium-density fiberboard, hardwood plywood) and water-conserving fixtures and appliances, according to Wilson. Formaldehyde was reclassified in 2004 as a “known human carcinogen” by the International Agency for Research on Cancer, and California is expected to adopt stringent regulations that will, within a few years, eliminate panel products made with ureaformaldehyde binders, says Wilson. Portland, Ore.-based Columbia Forest Products Inc., North America’s largest producer of hardwood plywood, is leading alternative development with a soy-based binder. On the water-conservation front,Wilson points to the new generation of horizontal-axis (front-loading) clothes washers and dual-flush toilets (both available from multiple manufacturers), low-water-use (about 1 gallon per flush) pressure-assist toilets using flush mechanisms from Sloan Valve Co., Franklin Park, Ill., and Chicago-based Delta Faucet Co.’s new 1.6-gallon-per-minute showerhead with H2Okinetic technology, which provides a drenching, large-droplet shower while saving water. The list of green products goes on and on, from structural insulated panels (foam sandwiched between layers of particle board)
to cork flooring and carpeting. (“Significant innovation has been happening in the carpet industry, where new green product lines are being introduced all the time,” says Wilson.) But the flood of green is not without its problems. There is no firm definition for a green product. Organizations are working to outline what is and isn’t green, but no single, simple classification system exists. No hard rules. In general, a green product is one that – to one degree or another – conserves energy and/or water, contributes to a healthy home environment (by improving air quality, for example), protects natural resources and is affordable (based on life-cycle costs). But it’s not an exact science. In wood, for example, debate continues over which agency is the best to certify sustainably harvested lumber – although both Mages and Wilson believe the Forest Stewardship Council runs one of the most robust programs to promote responsible forest management. (Visit www.certifiedwood.org and specify FSC-certification using the “certified product” search tool to find a supplier.) But … “So-called ‘greenwashing’ happens more and more frequently, as manufacturers exaggerate environmental claims about their products to appeal to the growing demand for green building products,” says Wilson. “As green building has become
bigger business, this problem has worsened.” Wilson has addressed it by compiling the directories Green Building Products and GreenSpec. Manufacturers do not pay to be listed in either, and neither carries advertising (visit BuildingGreen.com). “Independent, third-party certification of environmental claims is very important,” he says. What sometimes slips through the cracks in finding and using green materials is their performance.A toilet that uses less water for a year then breaks down and requires a replacement may not be so environmentally friendly after all. One green product that has boomed in recent years has been bamboo floors. But more than one source has expressed disappointment in the performance of bamboo.A lot depends on the manufacturer, but bamboo in general does not distress “gracefully,” says Mages. People not only want to be more environmentally responsible, she says,“they want performance; they want something that ages well.” With the abundance of green products now on the market, it is now easier than ever to find both.
Ask Our Broker
CONTINUED FROM PAGE 1
review your tax and write-off situation. Consumer Notice:The federal government has issued an important mortgage information guide regarding “nontraditional” mortgages – the government’s term for potentially toxic loans, financing with tiny payments up front and then huge payments after “start” periods end.The credit-resource pamphlet “Interest-Only Mortgage Payments and PaymentOption ARMs – Are They For You?” contains important questions, examples and forms that borrowers should review before considering these increasingly-popular loan formats. The guide can be found online at www.occ.gov/ftp/consumer/charmbrochure.pdf.
Q: What does a real estate broker do? A: A real estate broker traditionally is described as someone who, for a fee, helps another buy, sell or manage real estate. In effect, a broker is an “agent” of a “principal” or “client.”As an agent, a broker has obligations to clients such as care, obedience, accountability and loyalty. In some jurisdictions, however, brokers may not function within the traditional definition. For instance, you may find a “transactional” broker, someone who brings buyers and sellers together. Or, you may encounter a “disclosed dual agent,” someone who represents both buyer and seller with their advance approval. A real estate salesperson or associate broker works under the authority of a broker. Only a broker may enter into contracts with the public or collect a real estate commission. The commission paid to the broker is then divided with salespeople or associate brokers on a negotiated basis. Real estate licenses are awarded by state and provincial governments upon the completion of certain educational requirements.The term “Realtor” defines a real estate licensee who is a member of the National Association of Realtors. It’s important to know whom a real estate professional represents. Most jurisdictions now require brokers to provide detailed disclosure forms to both prospective clients and customers.These forms are important because they explain whether or not the broker represents your interests. Brokers can represent sellers as listing brokers, purchasers as buyer brokers and both as disclosed or “designated” dual agents.The terms of listing agreements and buyer brokerage contracts are entirely negotiable.There are no fees or commission rates set by law or regulation. Given the complexity of real estate transactions, and given the money involved, both buyers and sellers should use experienced, competent real estate professionals when buying or selling property.
© CTW Features
Need real estate advice? Peter G. Miller, author of “The Common-Sense Mortgage,” would love to hear from you. Send your questions to [email protected].
© CTW Features
CLOSING TIME How much do you want to put up front?
CONTINUED FROM PAGE 1 savings,” says Staci Mintz, a Realtor with Pinnacle Estate Properties, a real estate brokerage firm located in Encino, Calif.“Their out-ofpocket, up-front expenses are lessened.” By closing at or near the end of the month,“many buyers feel as though they are receiving a free month of housing,” says Patricia Leon, CEO of RELO Direct, a fullservice relocation company headquartered in Chicago. However, if the buyer closed in the middle of the month, they would be required to pay the PITI from the
15th through the 31st of that month. “Granted, they would not have a payment due for another 30 days, but they would be required to have more cash at closing than if they closed at the end of the month,” Leon says. On the other hand, closing at the start of the month can have its plusses, too, says Mintz. If you closed on March 2, for example, your first payment would not be due until May 1: 60 days later.You would be responsible, however, for prepaying 29 days of PITI at closing. What’s more,“if a buyer closes near the first of the month, even though they will be charged PITI for the entire month – making their costs at closing a little bit more expensive – it allows them to get into their home sooner and start the decorating process,” says
Nevenner. In the long run, it doesn’t really make a difference when you close, says Mintz.“But some people like to save their initial out-ofpocket expenses to pay for costs associated with moving or unforeseen expenses that may come up associated with their new real estate purchase.” In the current housing market that favors buyers, concerns about the time of the month to close are less worrisome, considering that buyers typically have more leverage today to ask sellers to pick up the tab on some or all of their closing costs and PITI prepaids. Ultimately, the scheduling of your closing may be out of your hands anyway, so it’s best not to fret about it, says Mintz. “Even when you want to, it can be hard to accurately time the
close of an escrow,” Mintz says. “There are many things that can cause the close to be a few days late or even a little longer.There are title searches, inspections, escrow officers’ schedules, plus the lender that has to approve and fund the loan.These people are all human and have to work together.” “The timing of a closing is all about cash outlay,” adds Leon. “There is no cost differential dependent on the day of closing – it’s all about how much money you need to bring to closing. Interest is charged for every day that the loan is outstanding, so at the end of the day, buyers and sellers have ultimately paid the same amount of money for their housing.”
© CTW Features
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