Lauren's Blog

Title Insurance and Foreclosure

Lauren Herlich (US Spaces Inc Real Estate) — Wed, 29 Oct 2008 17:11:27 -0500

Following my last post, Liens, Grantors, Grantees, Mortgagor, Mortgagee........., I think it is worth also explaining Title Insurance and Foreclosure in an attempt to get to the subject of short sales. If you did not read the last post, it may be helpful to read it before reading what is outlined herein.

As a buyer or if you are refinancing, you will hear about or deal with title insurance. It has been my experience that most people have little understanding of what title insurance actually is. In the simplest terms, there are two basic types of title insurance. The first type is the Owner's Policy, and the second type is the Loan Policy. There are other types of title insurance, but these are the two types you, the home owner, will need to be concerned with in 99% (not a scientific number) of the cases. The exception may be if you are involved with some type of leasehold property.

The Owner's Policy insures your title to the property. It insures that your title to the property is free and clear of all judgments, liens and encumbrances. When you buy a property, either you or perhaps your agent will order title insurance. The title company will run a public record search. They will check for any public utility, taxes, judgments, liens, mortgages, bankruptcies, restrictions, exceptions, etc.. They will produce a title report, which is a proposal for insurance. I am not sure if every state looks the same, but in Pennsylvania, the title report is broken down into four schedules: A, B, B2, and C.

Schedule A gives basic information. It shows the date through which the title search is valid. This date is referred to as the cover date. It is the date through which the title company was able to search the public record. It also shows the file number, property address, who currently owns the property, and which policies the title company is proposing to insure, the proposed insured names and the amounts insured. In a basic home purchase, there should be two proposed insured parties. The first is the home buyer/grantee for an Owner's Policy of Title Insurance, and the second is the lender/mortgagee for a Loan Policy of Title Insurance.

Schedule B lists all of the items, which need to be addressed to clear title and insure. Thus, it shows the documents, which need to be executed such as a Deed, Mortgage, Affidavits, perhaps a Power of Attorny, etc.. It also shows taxes, mortgages, judgments, liens, etc, which need to be paid to clear the title.

Schedule B2 shows exceptions, conditions, restrictions, etc.. This section discloses the rights of others to the property. There may be previously granted oil rights, gas rights, mineral rights, etc., easements for roads, utilities and pipelines, which can limit the ability of where and how the buyer can use the property, or possibly rights that have been granted to others such as neighbors for access over the land, companies for irrigation, etc. The review of this schedule is important, because these rights supercede the buyer’s rights on their future property. The title insurance will not offer any protection to the buyer for any of these issues.

Schedule C covers the legal description. This schedule can vary from state to state. In Pennsylvania, the legal description is a metes and bounds description followed by a recital, which shows the dates of deed and recording to get from the last owner to the current owner. The recital may include a description of dates and estates to provide the chain of title from the last seller to the present seller. Thus, if the Smiths bought a property in 1960, the recital will show the date of the deed, the date it was recorded in the public record and the book and page where it was recorded, and name the parties who conveyed the property to them. If both of the Smiths passed away, then it will show their dates of deaths and their estates and the parties assigned to be administrators or executors.

So, you have ordered title insurance. The title company has run a search and produced a title report. They will send you a copy of the title report and the seller will receive a copy either from you or from the title insurance company. The seller will go through the report and produce payoffs and bills to clear the title at settlement. They will also be required to produce identification and perhaps legal documents: there may be divorce decrees, wills, etc. These items may need to be reviewed by the title insurance company and additional requirements added to the title report.

The buyer will also be searched in the process of the title search. There may be items that the buyer is required to payoff also. For example, in Pennsylvania, if you have outstanding child or spousal support payments, you will be required to payoff the support before buying the property.

At settlement, the title insurance company will require everything to be paid that the report reflects. They will take the title report and "mark it up". They will mark all items paid and proven "REMOVED". There are other items, especially those found on Schedule B2, that will be marked "EXCEPTED". The excepted items will be still in effect and not covered by the title insurance. Therefore, items like roads and easements and rights will still be in effect and your title insurance will have no bearing on these issues. Typically in Philadelphia, there is a party wall or an alleyway, which others have rights to. After you buy the property and receive your insurance, the others will still have rights to the party walls and alleyways or any other excepted items.

When the settlement is scheduled, the title insurance will run an additional search called a bring down. The bring down will simply be an update to the complete search. They try to close the "GAP DATE", which is the original cover date to get as close to settlement date as possible. Additional items may be found on the bring down. When they insure your title, the title insurance company insures you through the date your deed and mortgage are recorded. They have additional risk in this gap period, where the records can not be searched prior to settlement and until they record your deed. It is pretty straight forward that if they are insuring a clear title for you, they are insuring that nothing is standing in the way between you and your title. There are not taxes due, no judgments, no mortgages on the property, etc.. If something should come up at a later date, the title company is on the hook.

The Loan Policy is a little more complicated. The Loan Policies guarantees a lien position. When you are buying a house and have one mortgage with which you are buying the property. The mortgage is referred to as a purchase money mortgage. It is a first mortgage and should have a first lien position. The title insurance insures that everything is paid off and there are no liens, which will come before this lien.

There is another concept, which is referred to as priority of liens, which is the order in which creditors are paid when borrower's assets are liquidated. When dealing with real estate in Philadelphia, taxes, water and sewer, and gas (PGW) take priority. Even after the loan policy of title insurance is issued, these three items retain a senior lien position to the mortgage. The mortgage will always be subordinate to taxes, water and sewer, and gas (PGW) in Philadelphia. Thus, if you should default and get taken through the foreclosure process, the eventual winner of the sheriff's sale will not only have to pay off the lender/first lien holder, but also the senior liens: taxes, water and sewer, and gas. If there is a second mortgage and judgments, etc., the taxes, water and sewer, gas and first mortgagee would need to get paid off, but the remaining items would get removed.

Now, of course the process and subject of priority of liens, foreclosure and sheriff sale is much more complicated than above described, and further complicated by state liens and IRS liens, which have certain priority positions. There are notification rules and certain processes which apply, etc. that I will not get into in this post.

Thus, when a lender forecloses on a property, they must go through the legal expense of foreclosing, must pay the municipal items and any liens, which are senior to their own. If another party bids against them at a sheriff sale, then the party winning the bid must pay those same costs and expenses.

Now, we keep hearing about a thing called a short sale. A short sale generally happens when a borrower is being foreclosed upon. With the lenders co-operation, the borrower lists the property for sale. The hope is to sell the property and avoid two things. First, to avoid going through with the actual foreclosure, and second, to sell the property and avoid, on the lender's part, the possibility of taking the property back at the sheriff sale. If the lender takes it back, then they have the added burden to market and sell said property. I will go further into this process in the next post.

Liens, Grantors, Grantees, Mortgagor, Mortgagee.........

Lauren Herlich (US Spaces Inc Real Estate) — Tue, 21 Oct 2008 12:53:47 -0500

Another blogger reading my last post, Why Should You Understand Terms a Realtor Uses?, suggested I should write a post on SHORT SALES since it is a term used quite often these days in the news. In order to write such an article, I think there are a few other ideas I should write about first to make the idea of a short sale clear.

Since I am writing about real estate, I will address the idea of a mortgage. First and foremost, a mortgage is a lien. Of course, the next question is: what is a lien? A lien is a right to retain the lawful possession of another's property until the owner of the property fulfills a legal duty or obligation. In the case of a mortgage, the legal obligation is to pay off the loan. When the loan is paid off, then the lien/mortgage/obligation is removed from the property.

To start at the very beginning, when you buy a property, you receive something called a deed. Most of us understand what a deed is, but just in case you are completely new to buying real estate I will explain. A deed is a legal instrument, which gives you title to or ownership of a property. The grantor (seller) signs the deed to you, the grantee (the buyer). In exchange, you pay some consideration to the grantor for that property. The grantor "gives" you or conveys the property and title to the property to you with a deed for this exchange.

In the same way, when you borrow money from a lender to buy the property, the lender will require you to sign two legal instruments. The first of which is a NOTE. The note is the promise to pay the loan or debt back and spells out the terms upon which you will pay the lender back. The second legal instrument is the mortgage.

Now, the idea of the mortgage is often confused. You actually give the mortgage/lien against your property to the lender in exchange for the money you are borrowing. You are paid for this lien. Thus, you are the mortgagor and the lender is the mortgagee. Think of it in the following way: the "OR" has the thing of value and the "EE" has the money to buy either the whole of the property or interest in the property. Therefore, the grantor owns property and is willing to take the money or some other consideration from the grantee in exchange. Likewise, the mortgagor has property and is willing to sell off an interest in the property in exchange for money. The mortgage or lien is the interest another party has in your property in exchange for something of value, which is usually money.

Thus, you, the grantee now own property, but also have a lien against the property in the form of the mortgage. Therefore, you cannot sell the property without satisfying the lien holder (in this case, the mortgagee). So, when you go to sell the property, you must completely pay off the mortgage before conveying your title to the property to a new owner. Of course, there are exceptions to this idea, but in general terms, this method is how it will work with the normal residential transaction. There are places where buyers/grantees will take a property with existing liens; it is not the usual circumstance, however.

I believe the idea of giving a lien or mortgage to the lenders gets confused, because the lender prepares the actual document. Very simply, they are not going to agree to lend you the money unless you sign "the document", which legally covers their interest.

Of course, this explanation is oversimplified, and anyone, who has signed a mortgage and note knows that it seems like endless pages to sign and initial. I have tried herein, however, to explain, at the most basic level, the documents/instruments involved in a residential real estate transaction and the meaning of these documents/instruments in the same transaction.

Why Should You Understand Terms a Realtor Uses?

Lauren Herlich (US Spaces Inc Real Estate) — Tue, 14 Oct 2008 13:36:40 -0500

Why Should You Understand Terms a Realtor Uses? Well, truth be known, there is no reason why any buyer or seller should understand the terms or abbreviations a Realtor uses. We, the real estate community, are so used to throwing the words around, that we forget that the terms are not in common use, but instead, used for conversation with a very limited number of people.

I have noticed sometimes people ask me what something means and sometimes they don't and sometimes they look puzzled. They do, however, often come back with the incorrect responses. I, in this situation, blame myself for the poor communication. So, I will try to list as many terms of which I commonly use and hear to clue you into their meaning so that you will know right off what they mean.

ACTIVE You will see ACTIVE used on the property listing or on the MLS (see definition below) or hear people use it. What it means is that the property is up for sale and available.

UNDER CONTRACT Generally speaking, you will hear this term used. It means that there has been an offer made, and an offer accepted. There is a contract in place, but the property has not closed or settled yet. It is possible that this property comes back onto the market.

PENDING You will usually see this term on the MLS or on property listings. It means the same thing as UNDER CONTRACT. It refers to a property awaiting completion of the contract. It is possible that the contract does not get fully executed, however, it is in process to go to settlement or closing.

WITHDRAWN You will hear this term spoken or on the MLS. Withdrawn means the owner(s)/seller(s) has(have) taken the property off the market and it is no longer for sale.

EXPIRED You will see this term used on the MLS or property listings. It means that the contract between the listing agent and the seller has run out of time. The seller is no longer obligated to sell the property through that specific listing agent. There are exceptions, however. If certain things went on during the contract and happened after the contract was completed, the seller could still be obligated to the listing agent.

SETTLED This word means that the Agreement of Sale has been fully executed, and the property has changed hands or has been sold.

SETTLEMENT This term refers to the meeting, where the sellers and buyers get together and complete the Agreement of Sale by physically signing the Deed from seller to buyer while the buyer pays the seller for the property. This description is an over simplified version of a settlement.

CLOSING This word is used as a synonym for SETTLEMENT.

SETTLEMENT SHEET A settlement sheet is also referred to as a HUD-1. The HUD-1 is a form used at settlement to itemize all charges for sellers and buyers to give a complete list of the sellers' and buyers' incoming and outgoing funds in a real estate transaction.

HUD-1 See settlement sheet.

CONTINGENCY A Contingency will be seen in an Agreement of Sale. It is a contractual item in the Agreement of Sale, which allows for a special exception to the contract. For example, we often write a contingency into the contract, which allows a buyer to do a home inspection, and get out of the contract if they do not like the results of the home inspection while retaining their deposit monies. Every contract, however, does not have contingencies.

COMP Short for Comparable. See COMPARABLE.

COMPARABLE or COMPARABLE PROPERTY You will hear the word "COMP" thrown around, and it is abused greatly in today's market place. A "COMP" or COMPARABLE or COMPARABLE PROPERTY is a property, which has sold very recently and is similar in nature to the property trying to be priced for sale. The subject property is compared to the "COMP". If a "COMP" has something like central air that the subject property does not have, then the cost of the central air is subtracted from the price at which the "COMP" sold. If the "COMP" does not have something that the subject property has then it is added to the price at which the "COMP" sold. It is using these comps and analysis, that allows your Realtor to price your property. Many websites run comps for the general public, but be warned, they are very sketchy at best. It really only somewhat takes neighborhood and size into consideration and not condition.

Many times people will ask me to send them COMPS. I can send what I think are COMPS, but without seeing the subject property it is very difficult. Remember, the COMPS are CLOSED properties. More than not, I get some kind of communication after sending these requested COMPS that they would like to buy or see these COMPS. The COMPS have just recently sold and are not available. Thus, when asking for COMPS, please realize that they are not available.

MLS The MLS or Multiple Listing Service is a computer-based service which provides real estate professionals with detailed listings of most homes currently on the market.

CMA A CMA is a Comparative Market Analysis. It is an in analysis of a homes worth in the current market. Yourreal estate agent or realtor will use this method to give you a price range for which your property should sell.

Of course, this is a small list of terms, which I have provided, but hopefully, if you are thinking about buying or selling a property this list may help you understand and communicate better in the process of dealing with your old or new or future real estate.

Credit Repair and Debt Consolidation

Lauren Herlich (US Spaces Inc Real Estate) — Mon, 29 Sep 2008 15:09:52 -0500

As I begin writing today's blog, I flip over to see what the headline is on THE DRUDGE REPORT. It reads, "Citi Eats Wachovia". The article goes on to describe just another story of what we are all hearing in the news daily: "bad loans", "the mortgage crisis", "the housing crisis", etc.. And as I write this blog, and reread DUDGE, the headline changes to "DOW DROPS MORE THAN 500." and then, "HOUSE DEFEATS $700 BILLION BAILOUT" . None of these headlines are surprising, and I don't think unexpected. As I drove around in the car on several occasions today, I heard KYW/1060 reporting the response to a survey asking people if we are in a depression or not. Technically, we are not, however, many more people surveyed thought we were than thought so six months ago.

I cannot help but wonder if it is because of the headlines everyone is hearing or if it is due to personal difficulties that people think we are in a depression. I am sure sales are down everywhere, but I drive by Target, Walmart, The Home Depot and Ikea, and I see the parking lots are jammed, and people are coming out with packages. I am reflecting on what is directly around me, and don't know if I would see the same thing if I were in another part of the country or even another part of the Commonwealth of Pennsylvania for that matter.

In the news, we keep hearing stories about people in trouble, people who cannot pay their mortgages, and people with credit problems who cannot manage to get themselves into a mortgage. I have met a few, as I have said before, and if you are someone with some credit difficulties, you may find the rest of the blog and links helpful.

In previous blogs, I mentioned non-profit credit counselors. The reason I favor and focus on these groups is a simple one: they are not offering their services for profit. Are all of them the same? I am sure they are not. Are some of them better at helping you? I am sure they are. Thus, if you try one and don't seem to be getting anywhere, try another one. Just write off the first experience as a learning experience and find the group, which can help you get your credit issues resolved.

I see them advertised everywhere. They are the for profit credit repair companies or debt consolidation companies. I am not saying that none of them provide a service, which is valuable, but be wary when giving them or anyone your hard earned money for such a service. After all, it is because of a shortage of money that you are having a problem. Educate yourself ahead of time about what they can and cannot do in providing services to you. Some of them, in their advertising do promise to do things they absolutely cannot do. I came across a good link today, which may give you some insight into the facts before you begin to use one of these services. See Credit Repair Facts - Common Scams.

Now, before using either a non-profit or for profit credit counselor. What can you do yourself? See Steps to Fix Your Credit. Here you are provided with the steps to take, and things to look for in improving your credit situation. You can do all of these things yourself. It will cost you time and effort. At the link, there is a tab, where they also provide a link to sample letters to use in the process of fixing your credit.

QUOTES ON "HOME"

Lauren Herlich (US Spaces Inc Real Estate) — Wed, 24 Sep 2008 21:06:31 -0500

I have been reading quotes recently mostly for my own amusement. Some quite funny and some quite serious. I ran the word "HOME" and came across the use of many meanings of the word. There are those quotes about the idea of a home town, a house, a country, a family, a place in the heart, etc.. Since many of my readers are either thinking about buying a house to make a home, or are professionals in business of helping people find a house to make a home, I thought you may enjoy the result of my query. The following is a sampling of some of the results. I left the silly ones, which really having nothing to do with anything except they contain the word "home", for the end to give you a chuckle. I hope you enjoy them.

Home is the place where, when you have to go there, they have to take you in.
Robert Frost

The best time to buy a home is always five years ago.
Ray Brown

Human beings are the only creatures on earth that allow their children to come back home.
Bill Cosby

Home is where one starts from.
T. S. Eliot

A house is not a home unless it contains food and fire for the mind as well as the body.
Benjamin Franklin

A man travels the world in search of what he needs and returns home to find it.
George Edward Moore

Home is where the heart is.
Pliny the Elder

The ache for home lives in all of us, the safe place where we can go as we are and not be questioned.
Maya Angelou

Home is not where you live, but where you are understood.
Christian Morgenstern

To be happy at home is the ultimate result of all ambition, the end to which every enterprise and labor tends, and of which every desire prompts the prosecution.
Samuel Johnson

He is happiest, be he king or peasant, who finds peace in his home.
Johann Wolfgang von Goethe

To feel at home, stay at home.
Clifton Paul Fadiman

Home is any four walls that enclose the right person.
Helen Rowland

The ordinary acts we practice every day at home are of more importance to the soul than their simplicity might suggest.
Thomas More

When you finally go back to your old home, you find it wasn't the old home you missed but your childhood.
Sam Ewing

My only concern was to get home after a hard day's work.
Rosa Parks

My career always took me away from home, I was always away from home and I just wanted to be at home.
Tina Turner

When you're safe at home you wish you were having an adventure; when you're having an adventure you wish you were safe at home.
Thornton Wilder

To be an ideal guest, stay at home.
Edgar Watson Howe

I love cats because I enjoy my home; and little by little, they become its visible soul.
Jean Cocteau

Charity begins at home, and justice begins next door.
Charles Dickens

A girl phoned me the other day and said... Come on over, there's nobody home. I went over. Nobody was home.
Rodney Dangerfield

Always be nice to your children because they are the ones who will choose your rest home.
Phyllis Diller

Ten men waiting for me at the door? Send one of them home, I'm tired.
Mae West

Basically my wife was immature. I'd be at home in the bath and she'd come in and sink my boats.
Woody Allen

I have Social Disease. I have to go out every night. If I stay home one night I start spreading rumors to my dogs.
Andy Warhol

Do you know what it means to come home at night to a woman who'll give you a little love, a little affection, a little tenderness? It means you're in the wrong house, that's what it means.
Henny Youngman

My wife met me at the door the other night in a sexy negligee. Unfortunately, she was just coming home.
Rodney Dangerfield

CREDIT: For People Who are Thinking About Buying Real Estate

Lauren Herlich (US Spaces Inc Real Estate) — Tue, 23 Sep 2008 14:40:21 -0500

Over and over again, I am running into people who would like to buy real estate and find that they cannot get approved for a mortgage, because they have credit issues. I know this is not some big revelation. I know it is the headline in the news everyday right now. Some of these credit problems are big and will take years to straighten out and others are small items, which can be fixed in a 3 month time period. It may seem hopeless, but it doesn't have to be. What should you do if you find yourself in these circumstances?

First, don't delay and put off your credit problems. It is very easy not to open the mail, screen your calls and forget that the problem exists, but there are solutions. There are non-profit credit counselors available for help in these matters. They can help you straighten out your credit, inform you about the home buying process, and help you qualify for grants if you are eligible. I had one client go through a program, get her credit straightened out and get pre-approved for a mortgage by virtue of participating in what was available at the credit counseling agency. Further, the sooner you start, the sooner you can get your credit cleared up and approved for that mortgage. The next thing will be to find the HOUSE!

Some people suffer from another credit problem and that is no credit. They have never had a credit card, a utility bill, car payment or even a cell phone bill. You do need to establish some kind of credit to get pre-approved for a mortgage. You may want to apply for a major credit card, use it and pay it off in full (don't create a credit problem), get a cell phone, etc.. Credit counselors can also help you when you find yourself in this circumstance.

The Department of Housing and Urban Development provides a list of approved credit counselors around the country. Please, see the following link for Philadelphia HUD Approved Housing Counseling Agencies. At this link, you will also be able to search for credit counselors in other areas.

Second, I would start putting away some cash. These days, you will most likely have to come up with at least 3% of the purchase price for a down payment, appraisal fee (could be as much as $399), inspection fees (in Philadelphia, I would estimate $450) and any other closing costs not covered by a seller assist. If you do not get a seller assist, it is safe to estimate that the closing costs will be 7%-9% in Philadelphia.

Another thing to consider, in this process, is getting your paper work together. Get copies of your bank statements ready for the mortgage company, copies of pay check stubs, and copies of your tax returns. They will be asking for them between the pre-approval and the mortgage commitment. Be prepared to give them any updated copies of the aforementioned documents and copies of the resolutions of any credit problems you may have had. Unless, they have approved a "gift" of money, they are going to want to see that the money you have and some reserves have been in the bank for 2-3 months.

I would stress above all, do not delay. Get working on the problem so that there is a solution in front of you and a time frame laid out to solve the problem. The sooner you address these problems, the sooner you can be in your own house.

Photos of My Neighborhood * In South Philly

Lauren Herlich (US Spaces Inc Real Estate) — Sun, 21 Sep 2008 04:17:21 -0500

Today, was too nice of a day to sit inside at the computer to write. I went out early, ran some errands, and had tacos for lunch. I came home. I took a nap. I got up to take a walk with camera in hand and took photos of my neighborhood for those of you, who read this blog and are not familiar with what South Philly looks like.

My Block

Two rehabbed houses on Jessup Street, the street behind mine.

This is what typical alleyway looks like... gate and all

East Passyunk Avenue runs at a diagonal
through my neighborhood.
It has cute shops and restaurants.

Living in Philadelphia, you sometimes forget,
there are murals everywhere

10xx Cross Street, runs between 10th and East Passyunk
A normal block with three huge houses added in recent years

My New Friend, Steve

Lady taking her bird out for an airing on 10th Street

Wall by Isaiah Zagar

Just thought the garden looked pretty - right off Tenth Street

Annunciation Parrish

Gino's Steaks and Pat's Steaks sit at the end of the market
People call it the Italian Market or Ninth Street
This is just the South of Washington Avenue. There are actually more stores and stalls on the North side
But I was there too late for it to be open
This is where you saw Rocky Balboa run

Center City from South Philly

Geno's and Pat's Steak sit across the Street from each other

Geno's Steaks

Cheese Fry and Drink Window

Steak Window

Pat's Steaks

My New Friends from NYC I met at Pat's Steaks
... but I think they ate at Geno's

Building on East Passyunk

Sign on East Passyunk for Karate School

St Pio Festival was today at Annunciation Parrish

Elvis and his fans

I wished this photo came out better .. they all looked so thrilled

Food!

This man was as impressed by me as he was by Elvis

PARKING SIGNS - Parking is at a minimum in South Philly

Italian Gear

The Food

Face Painting

Pop the Balloon ... a lot of work for what?

The Rides

Mom and Dad watching their son

Isaiah Zagar's Studio (I think) * 10th & Watkins

http://www.isaiahzagar.org/

Studio at 10th and Watkins * Next to Convent

Mummers .. Viking Club House ... Fancy Brigade

PARADE: VIDEO: String Bands Link

SERENADE FOR VIKINGS: VIDEO: Link

Different Fronts in the Neighborhood

My Block at Sunset

House with the nicest flowers .... always

My Neighbor ... selling me Cherries

Sellers: What Are Buyers Looking For?

Lauren Herlich (US Spaces Inc Real Estate) — Fri, 19 Sep 2008 15:46:38 -0500

After I went on an appointment the other day, I was really struck that all four houses, for what they were, showed really well. To start, they were all row houses. Two were grandma houses, one was cleaned up (new kitchen, new hardwood, paint and trim), and one was a complete rehab and very modern and innovative. It usually doesn't happen in the price range, in which we were looking, that all of the properties would show well. What did they have in common? They were all clean. One had furniture, but no knick knacks or pictures. Why is this important? There are no distractions. The buyer can picture themselves living in the house. When it is clean, they can imagine that they can move in without a big cleaning job, and they can look around and see the good attributes of the house.

I had this subject on my mind, had the television on this morning, and they were talking, on the TODAY SHOW, about a how to make your house look good for both you, and when selling the property without spending a fortune. The biggest piece of advice, which was given, was to paint the walls in light and neutral colors. Of course, I have seen examples where bold has worked, but it seems you need to be very careful when using bold colors. Next, they advised sellers to keep the house straightened, and remove pictures and personal knick knacks. They gave an example of someone with a white tiled bathroom with hot pink paint. The owner loved the hot pink, but the advice was that no one really wants someone else's bathroom, and it would be good to paint the walls white and make it look like a new, clean bathroom.

Then, they spoke about quick fixes in the kitchen, which can make it look much better. They were as follows: * New Back Splash

* New Cabinet Doors versus All New Cabinets

* New Knobs and Pulls

* Add an Island

* One "Status" Appliance

The next piece of advice they gave was for the buyer. I thought it was the absolute best piece of advice in the segment and that was to not buy a fixer upper unless you can fix it up. I would add to that .... or unless you can afford to have it fixed up in a timely fashion.

So, when I am going through a house, and I am talking about a row house, the following are the things I am looking at with my prospective buyers:

1. Cleanliness

2. General Condition of Kitchen and Bathroom

3. Basement: at minimum should be clean and neat, and in good repair. Hopefully it will also be dry.

4. Heater

5. Water Heater

6. Electric: Fuses or Circuit Breakers? Number of outlets in each room? Are there ground fault circuit interrupter outlets in the bathroom and kitchen (GFCI)?

7. Soil Line

8. Age of windows

9. Treatment of front of house and back of house

10. State of yard and wall

11. Lastly, decor and features such as anything high end or closets, etc.. In Philadelphia, we have that great store called IKEA and if there are no closets, you have a great opportunity to buy attractive, and functional wardrobes in place of the closets. For me, I prefer the wardrobe. I know, however, from showing houses that most people prefer closets.

Other things that seller should consider are the conditions of the roof and chimney. These things cannot be checked by the buyer, but instead by the home inspector, but the seller should be aware of the age and condition of these two items when selling their house.

For those of you not from Philadelphia, the yard in the above picture is really big for a South Philly Yard!

TAX CREDIT CORRECTION

Lauren Herlich (US Spaces Inc Real Estate) — Thu, 18 Sep 2008 15:01:08 -0500

I misreported the credit for which single tax payers could qualify. It is up to $7500 if you close between for homes purchased on or after April 9, 2008 and before July 1, 2009.

Please see the following link for more detailed information.

http://www.federalhousingtaxcredit.com/faq.php

TAX CREDIT CORRECTION

Lauren Herlich (US Spaces Inc Real Estate) — Thu, 18 Sep 2008 14:59:39 -0500

Over Improving Your House

Lauren Herlich (US Spaces Inc Real Estate) — Sun, 14 Sep 2008 12:21:58 -0500

I can only say, your home or house, whether it is a single family or condominium, is not an investment. However, you must consider which improvements are worth doing and which are not. Your home is the place, where you live, whether you rent or buy. Now, you should only spend what you can afford on your home, but there are things you may put into your home that you would not put into an investment property, because you want whatever it is to enjoy your lifestyle more fully. It may be something like a spa tub. You may not recoup the cost of that tub when you sell the property, but your quality of life is so improved that it is worth the expenditure while you are in the house, but do not consider it an investment, but rather a luxury. And don't expect that it will increase your property value by the amount you spent or any at all.

I had a buyer look at a very pretty jacuzzi and say that would be an expensive sweater dryer for her. Some of these things, which you may think add great value, will not for the next buyer of the home. The spa tubs are a perfect example, because some people love them and others hate them. Unless, you are investing in very high end properties, you probably would not include something like a spa tub for a tenant, because of the cost, maintenance and propensity to have more problems than a regular tub. Would you make enough in rent to cover the cost of installation, maintenance and possibly replacement? Probably not and you would therefore not install it.

You must be careful not to over improve your home unless the expenditure absolutely does not matter, and you are prepared to take a loss when you go to sell the property. For example, if you have a two story row house with no parking in a neighborhood where the most expensive houses are selling for say $200,000.00 and all two story houses, and you put a $60,000.00 or more third floor on it, and you plan to leave the house in the next few years. Was the money well spent? Probably not. However, if you put central air, new plumbing, new electric, new roof, new doors, new windows, is it money well spent? The answer is usually yes; these items add value. If you go into a poor neighborhood, however, it may be hard to recoup the cost of something like central air.

If you go to my previous blog on COMPS or COMPARABLE PROPERTIES, you will gain an understanding of how a Realtor, or Appraiser for that matter, determine at what "price" a property should sell. What a Realtor or Appraiser is looking for, however, is a comparable property that is similar in size, close in proximity and has sold, hopefully, in the last six months. Thus, if you put a third story on the property, there may be no comps and no market for it. I am not saying no one will buy it, but if the price you need to get to come out even or even ahead is so great that your prospective buyer could buy in a better neighborhood and perhaps get something like a garage or parking, which your property does not have, they are likely to go for the better neighborhood.

Last year, I ran comparables for a property in the neighborhood, where my office is, which is the area South of Oregon Avenue, North of the Expressway, and West of Broad Street. Most of the Properties will sell close to $200k and up to perhaps $270K. There are a few along Broad Street and Marconi Plaza Park, which sell for more. The ones that sell for more have parking and many have been improved to be very high end properties. They tend to be larger and have a view of the Park.

At $270K in the properties not on Broad Street or the park, what do you get? Well, new everything plus hardwood floors, granite counter tops, finished basement, new windows and doors, 3 bedrooms, at least one bath, but more likely 1-1/2, a finished basement, high end appliances, new front, etc.. The subject property was originally, a three bedroom. The middle room, however, was reduced in size to accommodate the enlargement of the bathroom. The bathroom was definitely the nicest room in the house done in beautiful Italian Marble. The middle room was now reduced to a small office or storage; you definitely could not put a bed in the room. There was a third floor added and made into a large bedroom. The plumbing was run for another bathroom, but not built. There was a small deck off the back with a view of Center City. All of the mechanicals, window, doors, etc. were newer and good quality. The kitchen was newer, nice, but not as modern as what is currently selling as modern. The rest of the house was okay. It was very clean, well maintained, but rather vanilla. It was decorated to the owner's taste, but not to the taste of what is selling as "modern". Anyone looking at the house would want to decorate. They would probably want to further update the kitchen and put down hardwood floors. If you are spending $270K on a house in that neighborhood, you should get hardwood floors.

Now, I thought they could stretch and perhaps get the $270K, but they wanted $325K. Now, when you get into the $325K range, you can buy a bigger house, a better address, and perhaps parking. At $350k, there are a lot of choices. If I had taken this same house with decorating problems and put it off Fitler Square, it probably could bring a price between $500K-$600K, but not in this location. In this location, South Philly, there are a lot of other choices over $300K.

The moral of the story is that they "over improved their house". They were very insulted by my price. They did not give me the listing. The gave it to another office. The house did not sell. It ultimately, had a FOR SALE BY OWNER sign on it. I haven't followed through to see if they eventually sold it and for what price. But I tend to think that the house did not sell.

The irony, in all of this pricing of this property, was that they wanted to move to a larger, two story house with a grass yard, and parking in Packer Park that was listed for about $350,000. The difference in a 30 year, fixed rate mortgage at 7%, if fully financed between $325K and $350K is $2164 versus $2330. In this price range, it is not truly a big difference. Parking alone is enough to justify the price difference. Which house would you buy?

What "Kind" of Property Do You Want to Buy?

Lauren Herlich (US Spaces Inc Real Estate) — Thu, 11 Sep 2008 14:06:11 -0500

I think this question is the hardest question for most first time home buyers to answer.

What is my advice? Try to answer the following questions.

First, What is my monthly cash flow? How much can I pay towards a mortgage payment? How much money will I need to improve a property? Do I have that money in the bank after I have paid for closing costsand moving costs to do the improvements I want to do? Can I live through the process of improvements? Do I even like to paint? Am I handy? Do I need to hire someone to do everything or can I do some things myself?

My suggestion is to consider location first. Perhaps, you want to pick a neighborhood, but pick a second neighborhood also where the properties may be a little less expensive. The result should be that when you are in your house in the first neighborhood, you could live relatively well in the better location, and in the secondary location, you could live even better. You have to carefully decide what you want outside your door. Do you want convenient public transportation? Do you want a corner store? How important is parking? What can you walk to?

In Philadelphia, the things that might sway me in the better location are the overall conditions. Is the plumbing, water heater, heater and electric up to date and show few problems? How are the walls, roof, kitchen and bathroom. If they are all without major issues, I would be satisfied. If the paint or wall paper is awful, I am not too concerned. I can live with it until I can do a fix. If there is wall to wall carpeting on the floor and I want hardwood, I am also not too concerned. To put down new hardwood floors in Philadelphia, is not that expensive.

I recently sold a house, which at the last sale was an "old house". The owners made good decisions. They replaced all but the big living room window. The kitchen was small, which they replaced. They put down beautiful hardwood floors. They put in a new sump pump and French drain. It was all money well spent, which added value to the house.

What I have left out is that they left a fake stone wall in the kitchen, paneling on the walls of the living room and dining room and flocked wall paper going up the wall where the steps rise. By the looks of it, the ceiling never had a drop ceiling, but instead acoustic tiles. The tiles, which they put up looked new and had an attractive pattern on them. They painted the flocked wallpaper white which gave a nicely patterned white wall, and imitated the treatments you can now buy at the big hardware chains. The paneling was painted a nice color and the fake stone wall was painted pink to match the trim of the kitchen counter tops.

To their credit, they also had very good taste. They had a very nice combination of modern and vintage, and everything just went together and worked. My client, who bought the house definitely did not want a house with paneling, but I think was struck with how the house just came together and visually worked. It had a nice feeling to it.

I sold another house recently where location and price were most important. Structurally, the house was good. But ultimately, the house needed new floor treatments, kitchen and bathroom, new stairs and painting throughout. The buyer had to go for an alternative form of financing, because the house could not be financed with a conventional mortgage, because of the bathroom. It did not have a sink. Now, if you are faced with this issue, there are mortgages you can get to buy the property in conjunction with a construction/improvement loan to make the repairs and improvements. The buyer, in question, had the cash in had to do the improvements and only had to do the first mortgage, but it is possible to do both.

Paneling and drop ceilings tend to be one of the biggest things that deters first time home buyers. I am deterred if it looks like the walls crumbled and ceilings leaked and they are covering up major sins rather than making repairs. But when you see a house that is covered with paneling and drop ceilings and it is clean and the basement is clean. The paneling was, generally, a decorating choice. Yes, it should be cheaper to buy this house. It should have a price differential with neighboring houses that allows you to hire someone to take down the walls and ceilings and put up new drywall and trim. You may find that you just need to make repairs to plaster. It is likely, however, that you will have to put up new drywall on the ceiling. Many of the old plaster ceilings are covered with wall paper, which was then painted. To try and take it down is a bigger job then gluing new drywall up and over it.

So, your first consideration should be location. Then, look at the major systems and roof . Then, look at the decor. There are lots of properties being sold as rehabs with 40-50 year old heaters. Be honest with yourself. Is it worth it to pay a little more each month to have a house in a certain location? Is it worth to to pay a little more each month to have a house, where I don't have to do a thing for a number of years? Is it worth it to have a house, where I don't have to do a thing and live in my second favorite location? Is it more important to keep the mortgage payment down and try to do things in the house a little at a time? If you begin to answer these questions honestly, you may have an easier time narrowing down the large lists of properties your Realtor sends to you. Hopefully, you will be able to make a decision in which you are more secure and happier in the long term.

VOTE IN! Should Foxwoods Casino Build on Market Street?

Lauren Herlich (US Spaces Inc Real Estate) — Thu, 11 Sep 2008 05:19:19 -0500

In today's Philadelphia Inquirer, there is a new proposal for the Philadelphia Slot Parlor slated to be on South Columbus Boulevard or for what us old school people still call Delaware Avenue. Instead of building on the South Philadelphia Waterfront, there is a new proposal to redevelop part of the Gallery and to move the Foxwoods Casino to Market Street.

http://www.philly.com/inquirer/home_top_stories/20080911_Rendell__Nutter_hail_casino_plan.html

I would love to know the opinion of my fellow Philadelphians. Please see the two polls at the right side of the page on my blog. Please answer the poll and leave comments at the link below.

http://laurenherlich.blogspot.com/2008/09/vote-in-should-foxwoods-casino-build-on.html

Why Should You Hire a Licensed Real Estate Agent or Realtor® When Buying Real Estate?

Lauren Herlich (US Spaces Inc Real Estate) — Tue, 09 Sep 2008 09:08:16 -0500

To begin with there is a difference between a licensed agent and a REALTOR®. For example, I am licensed by the Commonwealth of Pennsylvania as a "Sales Associate". I am a Realtor®, because I am a member of the National Association of Realtors®. All licensees are not Realtors®. To become a REALTOR®, one must join the National Association of Realtors® and subscribed to a code of ethics.

The Association provides information and educational opportunities to members as a commitment to a higher level of knowledge of buying and selling real estate. In addition, I belong to the Pennsylvania Association of Realtors and the Greater Philadelphia Association of Realtors, which too are committed to a code of ethics and higher education of their agents and brokers. Anyway, there is a lot written about the above difference between licensees and Realtors®. Which should you use? Of course, I come out on the side of the REALTOR®, but will leave that to a later discussion.

My main concern, herein, is people that go out and do it on their own. It seems simple enough. Download a form, go to Staples and buy an Agreement of Sale, and you are on your way to buying a piece of property. But is it that simple? Of course not. And it gets more complicated every day.

In the last year, I had clients, who came from out of town, and bought eight properties. I had put in about eleven, low offers for them. One was accepted. It was a simple and straightforward cash purchase of a shell and went through smoothly. They did not see, however, the work that was done for them behind the scenes. So, they went out, on their own, I think banging on doors and bought seven more properties. They were all in shell condition.

Well, the one fellow was originally from Philadelphia and left Philadelphia, at a time when almost anything was negotiable. You had a Water Bill, Judgment, etc., you could negotiate it down. Well, that is not the case these days. The City wants to be paid. Now, I am not saying everything is not negotiable, but a lot of it is not. This year, I was able to negotiate two $15.00 trash tickets, which grew to $600 to $175 for a client, but it was not easy and had to get someone in the Mayor's office to help me. The legal department had actually sent me a bill for over $4,500 and insisted it all had to be paid. There were judgments that did not attach to the subject property, and I had to "go to the mattresses" to clear it up.

Anyway, and not to pick on these clients, they made major mistakes. I begged them, when I became aware of what they were going to do, to get title insurance. Without the Title Insurance, they could get saddled with all sorts of other people's problems. They did, but they took the titles with exceptions. Meaning, they took on prior owner's problems. So, they did not buy clear titles. The sellers did not pay off everything at settlement. So, they had big water and sewer bills attached to at least one property.

They thought they could go to City Hall and get the bill cut in half; they could not. It was a poor calculation on their part and meant they paid ten thousand dollars more for the property. I believe the property had about a twenty thousand dollar water and sewer bill. This property and some of the other properties with other problems, should never have been purchased, because with the additional bills, the price paid was not justified for the property in question.

They ran into other problems as well. Ultimately, they ran out of money, and decided to unload the properties. I did not take on the listings, because I knew I could not get the price they now wanted, which was typically $10,000 more for a shell (this was the price paid and bills paid + $10,000), and no work done. There was no justification, in this last year, to get a price increase like that for the property. It was the wrong time in the market and the locations not very good. I did not feel like I could get their price and felt like I would be wasting their time and mine. I suggested they put them on Craig's List. So, they did.

They received a phone call from someone, who was out to see one property. When the prospective buyer got there, the City was in the process of demolishing the property. Why? Because, when they bought the property, they did not order a Licenses and Inspections Certification. It is required when buying and selling property in Philadelphia. They would have known that there were violations and such a fate was imminent. However, until you run into trouble, it isn't really enforced by the City to get the certification. You don't need evidence of it when your deed is recorded like you do in some municipalities. So, now, they are not only left without a property, but also need to pay the city for demolishing the property, and reinforcing the adjacent properties' walls.

Now, the cases described may be extreme. However, I have heard other stories like it. What does a licensee do to spare you from these kind of aches and pains. First of all, they are working the business of buying and selling real estate every day. They know the pitfalls, and can keep you from making expensive mistakes. They can ensure that you don't miss steps in the process of buying real estate. They can represent you in negotiations to put together the best offer for a property, which includes not only price, but also insurance, mortgage, inspection, and environmental contingencies, which protect both you and your deposit monies. It is disappointing when a client uses a contingency to get out of a contract, and I have had it happened based on inspections and zoning. But I always have to make sure what is best for my client is done.

There are so many aspects to what is a simple home purchase that when using an agent, the consumer doesn't see. Did you know that if you owe support payments in Pennsylvania, you cannot buy or sell property. If you do sell the property, and the buyer unwittingly buys the property. The buyer is now saddled with the child support payment judgment against their property? In Philadelphia, a gas bill goes with the property. This bill gets terribly complicated when the property has a tenant.Moreover, your agent can help you with financing options, grants, information on pricing in your area, and ultimately, make your purchase as stress free as possible. Your agent does not just help you "shop" for a house.

If your income taxes are anything, but very straightforward, you are likely to hire someone to do your taxes, who is current on tax laws and what can be done to give you the best result. You could scan through the IRS instructions and website to get the same result, but how long will it take you? And will you get it right? You should view such a large purchase as buying real estate similarly. You can research and get it done, but will you get it done correctly in the end? To have the representation of an agent and broker when going through the process, the result will be a better one and easier.

COMPS - Comparable Properties

Lauren Herlich (US Spaces Inc Real Estate) — Mon, 08 Sep 2008 07:42:21 -0500

I began writing a different blog today; one on the seminars, books and tapes available for inexperienced real estate investors to make one rich overnight. I realized in trying to put it together that the most abused term was "COMP". People are constantly calling me to run "COMPS" for a property that they are interested in, and for a property I have never seen. I can send "sold" listings for an area, but in no way do they represent "COMPS".

What should a "COMP" be? First, it should have sold, if possible, in the last six months. Second, it should be in close proximity to the subject property. Third, it should be a similar property. Then what?

I like to visit the subject property. (I will be using a row house in this example.) Does the property have a new roof? What is the condition of the yard? The alley walls? The back of the house? The front of the house? The kitchen? The bathroom? The water heater? The heater? The plumbing? The electric? Is there air conditioning? Is the basement finished? What are the floor treatments? What condition are the walls and woodwork? Are the bedrooms well laid out and do they have closets? There are more things for which I am looking, but these questions give you an idea.

Next, I look on the MLS (Multiple Listing Service) to see what SOLD properties I can find to use as comps. Again, I look for properties, 3-5, selling in the last six months, close to the subject property and similar in size and features. Now, of course, there are some assumptions made based on the photos and descriptions. So, how do I come up with an asking price?

What have the comps sold for?
Was there a seller assist?
What was the initial asking price?
How many days was the property on the market (DOM)?
What does the comp have that the subject property does not have?

So, let us take a look at the following example comps.

SUBJECT PROPERTY DESCRIPTION

House has been well kept by owner. The bricks are original and have been re-pointed; they are in good condition. The windows and doors are new throughout. The back, yard and alleyway walls have no issues. The house has central air. The heater and water heater are five years old. The plumbing is new PVC. The electric is modern. There are old hardwood floors in beautiful condition. The kitchen is older and a little worm, but usable. The bathroom is in mint condition, but old. The basement is cemented, and clean. There is a new rubber roof with a 15 year warranty.

Property A

Sold: $150,000
Seller Assist: $7,000
Initial Price: $145,000
Days on Market: 30
Additional Features: new brick front, new windows and doors throughout, nicely finished basement, new hardwood floors in living room and dining room, modern kitchen (not high end), new bathroom, new PVC, new electric, new water heater and new heater, new hardwood floors, central air and a new roof with a 15 year warranty.

Property B

Sold: $120,000
Seller Assist: $0
Initial Price: $145,000
Days on Market: 145
Additional Features: cement basement/walls need stucco, older re-pointed brick front, older windows and doors throughout, wall to wall carpeting and linoleum in the kitchen, newer kitchen, new bathroom, new PVC, new electric, 10 year old water heater and 5 year old heater, and a new roof with a 15 year warranty.

Property C

Sold: $180,000
Seller Assist: $12,000
Initial Price: $175,000
Days on Market: 90
Additional Features: central air, beautifully finished basement with wet bar and powder room, new brick front, high end, new windows and doors throughout, high quality hardwood floors upstairs and downstairs, new, modern kitchen with stainless steel appliances and granite counter tops, new bathroom with spa tub and stall shower, powder room on the first floor, new PVC, new electric, new 100 gallon water heater, new heater, and a new roof with a 15 year warranty.

Now what do I do with the information? First, I determine the net price.

Property A

Sold: $150,000
Seller Assist: $7,000
Net Price: $143,000

Property B

Sold: $120,000
Seller Assist: $0
Net Price: $120,000

Property C

Sold: $180,000
Seller Assist: $12,000
Net Price: $168,000

Second, I add or subtract from the Net Price.

Property A

Net Price: $143,000
Subtract $10,000 for new brick front (cost is about $20,000, but subject property has a nice front, which does not need to be replaced
Subtract $3,000 for refinished basement
Subtract $5,000 for new kitchen/partial credit
Adjusted price = $125,000

Property B

Net Price: $120,000
Add $1,000 for basement stucco
Add $3,250 for 9 windows and 2 new doors
Add $3000 for hardwood floors
Add $5000 for central air
Add $600 for central air
Adjusted price = $132,850

Property C

Net Price: $168,000
Subtract $10,000 for new brick front (cost is about $20,000, but subject property has a nice front, which does not need to be replaced
Subtract $6,000 for refinished basement
Subtract $8,000 for new kitchen/partial credit
Subtract $4,000 for new powder room/partial credit
Subtract $3,000 for better bathroom
Subtract $2,000 for better windows and doors
Adjusted price = $135,000

Now what should I do with these "Adjusted Prices"? I will weight them. I have determined that Property A is most similar, sold quickly suggesting it may have been appropriately priced and will make the following calculation. I will say that Properties B & C are equally, in their own way, similar to the subject property, but since C sold faster I will weight it slightly better than B.

Property A

Adjusted price = $125,000 * 50% = $62,500

Property B

Adjusted price = $132,850 * 20% = $26570

Property C

Adjusted price = $135,000 * 30% = $40,500

Now, I add the three weighted numbers together, I arrive at the following price: $129,570 with a range of $125,000 - $135,000. The example above is one way to run comparables and determine an asking price. There are other methods to determine an asking price and range, but this method is what works best for me.

I warn the consumer that when running comps on the national websites that many times the comps have not sold in an acceptable time frame, they are not close to the subject property and the conditions of the properties are not analyzed. The price range may not even be accurate, because, like in Philadelphia, prices can sometimes change quite dramatically just by crossing a street.

CAPITALIZATION RATE - INVESTING IN PROPERTIES

Lauren Herlich (US Spaces Inc Real Estate) — Sun, 07 Sep 2008 11:27:02 -0500

People are often confused about investing in real estate for investment purposes. When I am speaking of "investment purposes", I am talking about a long term investment where the subject property is a rental property. People know if the mortgage payment per month is $600.00 and the rent is $800.00, they are making money. Or are they?

The best way to analyze a property's potential is to use the income approach and the capitalization rate. What is it? It is how the property will pay for itself or cash flow. Often you will hear people talk about "cap rate". Again, what is it? It is a measure of how fast an investment will pay for itself. Thus, if your "cap rate" is 10% , the investment will pay for itself in ten years. And again, if the cap rate is 5%, the investment will pay for itself in 20 years.

How do you calculate the "cap rate"? It is a ratio between the net income and the price or cost of the asset. So, how do you calculate net income? The example below will give you an idea of how this calculation works. I will use a $1000 rent for the example. I am also assuming this is a 1200 square foot, single family house.

Gross Income (Rents x 12) $12,000
Real Estate Taxes $ 1,000
Utilities (Paid by landlord) $ 500 (Assuming in Philadelphia landlord is paying Water and Sewer - typical)
Insurance $ 1,000
Management Fees $ 720 (6% - could be higher)
Maintenance & Repair $ 600 ($0.50/ft - using 1200 square feet)
Replacement Reserves $ 420 ($0.35/ft - using 1200 square feet)
Snow Removal & Misc $ 400 (estimated)
Vacancy & Collection $ 600 (5%)

Net Income $ 6,760

Now you know what your net income looks like. However, some of these expenses listed above could be different in reality. For example, management fees could be more. In Philadelphia, it is likely that the insurance and taxes could be lower. Also, I have built into this formula that the property is in good condition when rented. I am assuming the roof, systems, kitchen and bathroom are reasonably up to date and functioning.

Now, you need to address the Capital Cost or Asset Price. See the example below.

Purchase price $60,000
Closing Costs $ 4,500 (7.5% - Philadelphia typically 6-9%)
Improvements $10,000 (Estimated)
Asset Price $74,500

The next step would be to take a look at the ratio.

Net Income/Capital Cost = Capitalization Rate

$6,760/$74,500 = 9.07%

Thus, the investment would pay itself off in a little more than 11 years. This is a very good capitalization rate.

Conversely, you may be looking at properties where you know the price. You can quickly calculate a number on gross figures to know whether it is worth even looking any further. I am seeing a lot of properties, currently, that are multi-family. They are collecting, let us say for this example, about $1800/month and asking $500,000 for the building. So, if I want an 6% cap rate, I don't have to go through great calculations to see what is what.

Gross Income/Capital Cost = Cap Rate

$21,600/$500,000 = 4.32%

STOP HERE! We have not used the net income nor have we added closing costs and improvements, and we are at a 4.32% Capitalization Rate. When we add and subtract the rest, the rate will only go down.

If you want to see what you should pay, let us assume that there are 3 units each paying $600 per month. Let us also assume that the building is 2000 square feet.

Gross Income (Rents x 12) $21,600
Real Estate Taxes $ 1,200
Utilities (Paid by landlord) $ 1,000 (Assuming in Philadelphia landlord is paying Water and Sewer - typical)
Insurance $ 1,200
Management Fees $ 1,296 (6% - could be higher)
Maintenance & Repair $ 1,000 ($0.50/ft - using 1200 square feet)
Replacement Reserves $ 700 ($0.35/ft - using 1200 square feet)
Snow Removal & Misc $ 400 (estimated)
Vacancy & Collection $ 1,800 (5%)

Net Income $13,004

So, if our net income is $13,004 and we want an 6% cap rate, which is the average for apartments, what should we pay for the asset?

Net Income/Cap Rate = Cost of Asset (What should be paid including closing cost and improvements)

$13,004/6% = $216,733

If you are trying to achieve a higher cap rate, be aware that many properties allowing for higher cap rates, will usually have higher vacancy rates.

Now, of course, there are other factors to consider when purchasing the property. Will the rents increase? Will the expenses increase? I could go on and on, but the questions may blur the idea of what I have explained herein. Thus, when considering purchasing and investment property, consider how the property will cash flow to see if you are making a good investment or not.

Grants and Credit Counseling

Lauren Herlich (US Spaces Inc Real Estate) — Fri, 05 Sep 2008 18:41:52 -0500

I don't know how it works in other parts of the country, but in Philadelphia, there are multiple types of Grants for which a buyer can qualify. Most of them are income related. Some come from the City of Philadelphia, Some from the State of Pennsylvania, and some from lenders.

What a buyer must be aware of is that the ones from the State and City require credit counseling. In fact, the counseling must be done before an offer is submitted. Thus, if you are low income or moderate income and pursuing one of these grants for closing costs, you must be very proactive and get in to meet with a credit counselor. The lenders may also require credit counseling, however, that must be determined on a grant by grant basis. In Philadelphia, there are many of these groups, which provide the counseling. There are too many to list here. Some are quite good and responsive, and some are not. Either way, be pushy and get in to see the counselor so that you can get on with buying real estate.

An agent in my office recently submitted an offer without realizing the counseling had to be done. So far, they are okay. Her buyer is on top of everything and the two have been scurrying to get everything done. They called all over to get the counseling done. They finally found a counselor who would meet with them Saturday night. She had to drive her client to the appointment so she ended up in attendance.

She said the Credit Counselor was very bright, but spent a good deal of time bashing Realtors. Misrepresented what we make. In fact, doubled it (what we make). Told the buyer not to tell the Realtor if they really liked a property. Told the buyer not to use a home inspector recommended by the Realtor, because they would just pass the house in order to get the sale pushed through. Also, told the buyer not to sign a buyer broker agreement. I have so many issues with what this man said and I was not there! I will address these issues in separate entries!

"AS IS"

Lauren Herlich (US Spaces Inc Real Estate) — Fri, 05 Sep 2008 18:29:26 -0500

We had a discussion today in the office as to what "AS IS" means. We agreed, as per our discussion, that it could have a couple of different meanings in a real estate transaction.

First, it could mean that what you see at "offer time" is what you are buying. Therefore, make sure you make a good visual survey of the property before making an offer, or perhaps, do a property inspection prior to making an offer, or bring a trusted, licensed and insured general contractor through for a good look at property and get his/her estimate for needed items and improvements wanted.

Or Second, it could mean that you still have the right to do inspections, but no ability to negotiate price based on the findings on the inspection(s). In this case, you would include a contingency or contingencies in the contract, which allows you to either accept, or decline as a result of the inspection and get your deposit monies back. So, you would hire a home inspector to inspect the property. When the report(s) comes back, you have a chance to review it/them and sign an acceptance or declination of the contract. If you decline, you are to get your deposit money back. If you accept, you will not be allowed to negotiate the price or assist based on the results of the home inspection.

Thus, if "AS IS" is presented to you, the buyer, in contractual form, make sure you have a contingency to get out of the contract if the "AS IS" condition turns out to be above what you have budgeted for improvements, or future improvements, or in other words the condition is worse than anticipated.

If the seller will not allow you to have inspection contingencies then do it before making an offer or find another property. Of course, there is an expense involved in doing inspections, so make sure you are serious about the property before either entering into a contract or have lots of extra cash on hand to do multiple inspections on multiple properties.

What do you do about your deadlines in an Agreement of Sale?

Lauren Herlich (US Spaces Inc Real Estate) — Fri, 05 Sep 2008 18:26:07 -0500

It is best to address all of them immediately.

Most people will need to do the following:

Make a mortgage application
Make sure the property is insurable
Schedule inspections
Make a second deposit
Perhaps, review leases or condominium documents

None of these items are based on one another. All of their contingency periods run simultaneously. Thus, a second deposit is not based on the result of the home inspection, etc.. Generally, it is due earlier. Thus, make sure your Realtor gives you a list of deadlines and begin making the phone calls as soon as you have the contract in your hand. You want to make sure you meet all deadlines and protect your deposit and not accidentally default.

The Tax Credit for Home Buyers under The Housing and Economic Recovery Act of 2008

Lauren Herlich (US Spaces Inc Real Estate) — Fri, 05 Sep 2008 18:22:12 -0500

There is a great incentive for FIRST TIME HOME BUYERS and/or people who have not owned a home in the last three years in the form of a Tax Credit provided by the Housing and Economic Recovery Act of 2008.

How does it work? I will try to make it as simple as possible

House must be purchased between 4-9-2008 and 7-1-2009
The house must be a primary residence
House ownership of spouse will affect your qualification
Income: Single: up to $75,000; Joint Filers: up to $150,000 (Singles earning up to $95,000 and Joint Filers earning up to $170,000 can get a partial credit)
The credit for Singles is $3,750 and Joint Filers is $7,500. The credit cannot exceed more than 10% of the sales price of the home.
The credit may be deducted on the 2008 or 2009 return depending on when the house is purchased
This credit is deducted from TAXES OWED and not from GROSS INCOME
If the credit is more than taxes due, you will get a refund of the credit amount
This credit is not a gift
The credit must be repaid, interest free over 15 years beginning two years after purchase of house
If the house is sold, the full balance of the credit must be paid off at the time of settlement

Anyone, who qualifies, should take this credit even if they are going to put the money into savings account. It is interest free and payable over 15 years.

How is a Property Zoned? Licenses and Inspections in Philadelphia

Lauren Herlich (US Spaces Inc Real Estate) — Fri, 05 Sep 2008 18:19:24 -0500

There are endless things, which can be written about the title I have chosen, but I will keep this simple and to the point. As part of your offer, when purchasing a property, you want to make sure that there is a zoning requirement listed as a contingency. Therefore, if the Licenses & Inspections certification comes back with zoning that is different from what you have required on the Agreement of Sale, you are not obligated buy the property.

Recently, I had an offer accepted on behalf of a buyer for a RESIDENTIAL DUPLEX. It was advertised as a DUPLEX. It was laid out as a DUPLEX. I had no reason to think it was not a DUPLEX; they are all over the City of Philadelphia. When we received the L&I certification from the sellers, the property was zoned as a SINGLE FAMILY RESIDENTIAL property, and the block was zoned for SINGLE FAMILY RESIDENTIAL properties alone. The sellers thought they had purchased a DUPLEX. Now, the reality was that many of the properties, on the block, were set up as DUPLEXES. The tax assessors listed them as DUPLEXES on the tax roll to get a higher tax rate, but they were still zoned as SINGLE FAMILY RESIDENTIAL properties.

The process to get it corrected, in brief, was as follows: first, apply for a zoning change; second, get turned down, because the block does not allow duplexes (this process takes about 30 days); third, apply for an appeal. The appeal requires architecturals, forms, plus property considerations like the size of the back yard versus the number of units . If you opt to pay the additional fee for the process to be expedited, you are talking about 2-3 months for the appeal process. Otherwise, it will take at least 4-5 months. There is no guarantee in the end that you will get a satisfactory result.

Now, today, I went to check on two garage spaces. I knew ahead of time that one was zoned "G2" and one was zoned "R10A". Yesterday, I printed a 43 page description of what G2 meant. It was Greek. I was not sure what was permitted and what was not. I called zoning they walked me through the 43 pages and I circled the two lines, which applied to the use my prospective buyer has in mind. It is allowed.

Today, I went to the Municipal Services Building, and down into the concourse level to Licenses & Inspections. I requested the files on both properties. There were none. The G2 seems to be fine regardless. The R10A, however, would need to go through the same process that needed to be gone through with the above duplex. It makes no sense. The owner, before the current seller, was an auto mechanic and used it for his shop. The building looks like a space for a business like an auto mechanic . However, there was, as suggested by the employees at Licenses and Inspections, probably a city ordinance that changed the zoning on the entire block.

Then, I tried to find out what R10A would allow. I could not find it in writing, but learned while at Licenses and Inspections today that the only real exception, to this type of residential zoning, would be a work/live situation for a medical doctor. At least, this is what I understand.

Now, there is no way the property in question is a residential property. We are still, through political connections, trying to find out if the prospective buyer could put the building into the use that he has in mind. So far, the answer seems to be yes. But we have nothing in writing. And are waiting on return phone calls.

The point in providing this information is to tell you to be very careful when buying something other than an obvious single family residential property. Know what the zoning is and know if the use about which you are thinking is permissible. Do your homework! Don't waste time being under contract and having two or more months go by to find out you cannot use the property how you had imagined.

Home Inspectors. How do you pick one?

Lauren Herlich (US Spaces Inc Real Estate) — Tue, 08 Jul 2008 13:13:45 -0500

How do you pick a Home Inspector?

It, typically, is not something you are doing regularly. So, you will not have your favorite home inspector like you may have your favorite electrician or handy man. Thus, what should you look for in a home inspector? And how should you find one?

1. Ask your Realtor for a reference or several, look on the web, look in the phone book

2. Call and ask them a few questions: * Will they give estimates on critical items? * Will they go up on the roof? * Will they take pictures? * How long will it take to get the report back?

I would expect that they will give you estimates on critical items. If you don't have estimates, then you must meet and arrange with each contractor to meet you at the property to give estimates. And these meetings must happen before your contingency period lapses if you intend on re-negotiating the price based on those inspections, or rescinding the contract.

I would also expect that the home inspector goes up on the roof and takes pictures so that you the home buyer can see the condition of the roof without climbing the ladder yourself! Again, although, in general, it is easier to get the roofer on the roof than other contractors to come out, who must go into the property, it is best if your home inspector does it at the time of the home inspection. You can always follow up with a roofer.

Pictures... they are nice to have, but best for the roof ,and next for critical items. I would insist on the roof, and would like the critical items, but would not turn away a good home inspector if he/she only gave me roof pictures.

Some provide the report right on the spot. That is a really nice service, however, if they will email within 24 hours, it is also good. It still should give you enough time to review the report and respond to the sellers. When your offer is accepted, and you have an inspection contingency, please schedule it immediately.