4 Red Flags That Send Buyers Running

How you present a listing online and the words you choose to describe it may be turning off some buyers. Bankrate.com recently asked real estate professionals to weigh in on what listing red flags are turning off their buyers.

1. No photos. “One red flag in many buyers’ eyes is the lack of photos for a listing,” says Don Tepper with Long & Foster in Burke, Va. “There can be some legitimate reasons for few (or no) photos in a listing: The sellers want privacy, or they have valuables they don’t want in the photos. But many would-be buyers–rightly or wrongly–assume that there’s something wrong.” Tepper recommends about a dozen photos for listings and photos that match the home’s description and showcases its best features.

2. Outlandish claims. Referring to the listing as the best property on the market might not be a good idea, says Ziad Najm, a broker at Cedar Real Estate in Mission Viejo, Calif. “Some buyers may be turned off to begin with and some will inevitably be disappointed if the claim doesn’t live up to their expectations,” Najm says. Instead, Najm recommends focusing on adjectives that are flattering to the property but leave some room for interpretation.

3. Priced too low. You want to price the property competitively but pricing too low may make some buyers suspicious or attract unqualified buyers. “Typically, multiple buyers will be attracted to the low asking price and eventually the sales price will climb close to market value as competing offers bid up the price,” Najm says. “However, the strategy is not without risk in that some buyers will be alienated by a potential bidding war.”

4. Listing a property “as is” in the description. That’s not a deal breaker but when you see “as is” in a listing, buyers might be cautious, says Diane Conaway, a San Diego broker with RE/MAX United. Some buyers take the “as is” phrase as the “previous owners stole everything including the kitchen and bathrooms,” Conaway says. “Our contract states ‘as is’ anyway, but some agents restate that in the listing, which is a disservice to their sellers.”

Sellers Need to Get Practical About Price

Sellers whose homes have lingered on the market for months–or years, in some cases–are banking on this spring to turn the tide.

Foreclosures and short sales are still flooding the market, which means many sellers are still up against big inventories and some big bargains that may pull away buyers.

As such, more real estate pros say it’s time to have tough conversations with sellers about slashing their sales price of their home, particularly if it hasn’t garnered any traffic in recent months or years. After all, spring usually brings out more buyers, as home shoppers look to buy and move before the next school year.

“We have had a problem with sellers who are nostalgic for the way it was,” says Ron Phipps, a Warwick, R.I., real estate professional and the president of the National Association of REALTORS®. He says what home owners could fetch for their home during the housing boom is not practical today. “You have to be where the market is, not where it was,” Phipps says.

Phipps suggests encouraging sellers to check out the competition by visiting open houses or viewing online virtual tours of similar homes for sale to see how the seller’s house compares in price and appearance.

“You have to be very realistic about what is keeping your home from selling,” Phipps says. “Sometimes it may actually be the person in the mirror, if your expectations are not realistic. Ultimately, there is a price at which all things sell.”

Take Some Tax Breaks for Moving

For those who moved in 2010, you may find tax deductions to write-off some of those hefty moving expenses.

You can write off relocation costs on your taxes, as long as the move is work-related, according to the IRS.

Some IRS-approved deductions for moving include the costs to move household goods and personal property, limited storage and insurance fees, and utility connection or disconnection charges, according to Bankrate.com. The IRS also allows for some deductions with lodging and travel expenses near your new and former homes, as well as shipping costs for your car and even the travel arrangements for your pets.

Here are some tips for claiming moving-related tax deductions, according to Bankrate.com:

  • Use the long Form 1040 to claim moving costs. Use Form 3903 to figure the costs. You do not have to meet a percentage-of-income threshold for moving deductions.
  • Ensure you meet the distance test. The location of your new job must be at least 50 miles farther from your prior address than your last office was. For example, if you lived 10 miles from your old job, your new job must be at least 60 miles from your old home before you can deduct moving costs.

The IRS’s distance test only considers the location of your old home and how far it is from your previous job, not your new residence.

  • Check the time requirements. Moving expenses are deductible if they were incurred within one year of starting a new job. You also have to work full time at a new job for at least 39 weeks during the first 12 months. As for self-employed workers, they must meet the year-to-move deadline and work full time at their entrepreneurial enterprise for 78 weeks during the first 24 months.
  • Collect all of those moving receipts. To claim the deductions, make sure you have receipts such as for the costs to move your property, storage, or utility connections.

Electrical Safety and Generators

When power lines are down, residents can restore energy to their homes or other structures by using another power source such as a portable generator. If water has been present anywhere near electrical circuits and electrical equipment, turn off the power at the main breaker or fuse on the service panel. Do not turn the power back on until electrical equipment has been inspected by a qualified electrician.

If it is necessary to use a portable generator, manufacturer recommendations and specifications must be strictly followed. If there are any questions regarding the operation or installation of the portable generator, a qualified electrician should be immediately contacted to assist in installation and start-up activities. The generator should always be positioned outside the structure.

When using gasoline- and diesel-powered portable generators to supply power to a building, switch the main breaker or fuse on the service panel to the “off” position prior to starting the generator. This will prevent power lines from being inadvertently energized by backfeed electrical energy from the generators, and help protect utility line workers or other repair workers or people in neighboring buildings from possible electrocution. If the generator is plugged into a household circuit without turning the main breaker to the “off” position or removing the main fuse, the electrical current could reverse, go back through the circuit to the outside power grid, and energize power lines or electrical systems in other buildings to at or near their original voltage without the knowledge of utility or other workers.

Effects of Backfeed

The problem of backfeed in electrical energy is a potential risk for electrical energy workers. Electrocutions are the fifth leading cause of all reported occupational deaths. Following the safety guidelines below can reduce this risk.

Safeguards against Backfeed

  • Extreme caution must be exercised by persons working on or in the vicinity of unverified de-energized power lines. All persons performing this work should treat all power lines as “hot” unless they positively know these lines are properly de-energized and grounded. Because of the possibility of a feedback circuit, the person performing the work should personally ground all lines on both sides of the work area and wear the proper required protective equipment.
  • Linemen must be instructed to treat all power lines as energized unless they personally de-energize them by establishing a visible open point between the load and supply sides of the line to be repaired, by opening a fused disconnect, by opening a fused switch, or by removing a tap jumper if the load permits.
  • Workers must verify that the power lines have been de-energized.
  • Workers must provide proper grounding for the lines. Unless a power line is effectively grounded on both sides of a work area, it must be considered energized even though the line has been de-energized. Lines must be grounded to the system neutral. Grounds must be attached to the system neutral first and removed from the system neutral last. If work is being performed on a multiphase system, grounds must be placed on all lines. Lines should be grounded in sight of the working area and work should be performed between the grounds whenever possible. If work is to be performed out of sight of the point where the line has been de-energized, an additional ground should be placed on all lines on the source side of the work area.
  • Persons working on or in the vicinity of power lines should be provided with appropriate safety and protective equipment and trained in procedures that address all magnitudes of voltages to which they may be exposed. Procedures should be established to perform a dual voltage check on the grounded load and supply sides of the open circuit. Once it has been determined that high voltage is not present, low voltage testing equipment, such as a glowing neon light or a light-emitting diode, should be used to determine if lower voltage is present.

Other Generator Hazards

Generator use is also a major cause of carbon monoxide (CO) poisoning. Generators should only be used in well ventilated areas. To learn more about preventing CO poisoning, see Carbon Monoxide Poisoning After a Disaster.

www.bt.cdc.gov

City of Chandler-Housing Construction, Employment & Energy Efficiency Improvements

he greatest challenge facing most public housing authorities is completing all of the work required on the assisted housing units with, in most cases, less funding. The Chandler Housing and Redevelopment Division (CHRD) found a way to get the most “bang for the buck.”

CHRD saw that one of the biggest costs associated with any project is labor. What started out as an experiment with hiring one person under “Force Account labor” program, where the housing authority hires its own instead of using contractors, has grown into a Capital Fund Program (CFP) crew of eight skilled and semi-skilled workers. For example, instead of paying a contractor $75 per hour an electrician or plumber, the CHRD is able to pay skilled workers HUD approved maintenance wage rate and save on average more than 50 percent.


Energy efficient house

In addition, most of the CFP workers are hired through a temporary employment agency, thus saving on benefits, workers comp, and unemployment. This process allows for better control of productivity, and quality.

The second area of significant savings is on maintenance and construction materials. With a little shopping around, CHRD is saving an additional 20-40 percent. CHRD is also able to control waste by only using materials actually needed, and returning unused material for a refund.

Renovations to the public housing units are funded by HUD’s CFP program. Between 2007 and 2009 (including Recovery Act funding), CHRD has received $2,049,465 for the CFP program. CHRD has completed numerous projects.

www.hud.gov

Your Home: Ways to Save Money in 2011

Home Equity Loans

Be cautious in taking out home equity loans. The loans reduce or may even eliminate the equity that you have built up in your home. (Equity is the cash you would have if you sold your house and paid off your mortgage loans.) If you are unable to make payments on home equity loans, you could lose your home.

Compare home equity loans offered by at least four reputable lending institutions. Consider the interest rate on the loan and the annual percentage rate (APR), which includes other costs, such as origination fees, discount points, mortgage insurance, and other fees. Ask if the rate changes, and if so, how it is calculated and how frequently, as this will affect the amount of your monthly payments.

You can often negotiate a lower sale price by employing a buyer broker who works for you, not the seller. If the buyer broker or the broker’s firm also lists properties, there may be a conflict of interest, so ask them to tell you if they are showing you a property that they have listed.

Do not purchase any house until it has been examined by a home inspector that you selected.

Renting a Place to Live

Do not limit your rental housing search to classified ads or referrals from friends and acquaintances. Select buildings where you would like to live and contact their building manager or owner to see if anything is available.

Remember that signing a lease probably obligates you to make all monthly payments for the term of the agreement.

Homeowner/Renter Insurance

You can save several hundred dollars a year on homeowner insurance and up to $50 a year on renter insurance by purchasing insurance from a low-price, licensed insurer. Ask your state insurance department for a publication showing typical prices charged by different licensed companies. Then call at least four of the lowest priced insurers to learn what they would charge you. If such a publication is not available, it is even more important to call at least four insurers for price quotes.

Make certain you purchase enough coverage to replace the house and its contents. “Replacement” on the house means rebuilding to its current condition.

Make certain your new policy is in effect before dropping your old one.

Home Improvement

Home repairs often cost thousands of dollars and are the subject of frequent complaints. Select from among several well established, licensed contractors who have submitted written, fixed-price bids for the work.

Do not sign any contract that requires full payment before satisfactory completion of the work.

Major Appliances

Consult Consumer Reports, available in most public libraries, for information about specific appliance brands and models and how to evaluate them, including energy use. There are often great price and quality differences. Look for the yellow Energy Guide label on products, and especially for products that have earned the government’s ENERGY STAR®, which can save up to 50% in energy use.

Once you’ve selected a specific brand and model, check the Internet or yellow pages to learn what stores carry the brand. Call at least four of these stores to compare prices and ask if that’s the lowest price they can offer you. This comparison shopping can save you as much as $100 or more.

Heating and Cooling

A home energy audit can identify ways to save up to hundreds of dollars a year on home heating (and air conditioning). Ask your electric or gas utility if they audit homes for free or for a reasonable charge. If they do not, ask them to refer you to a qualified professional.

Enrolling in load management programs and off-hour rate programs offered by your electric utility may save you up to $100 a year in electricity costs. Call your electric utility for information about these cost-saving programs.

Managing Fuel Oil Spills: Home Cleanup

Fuel oil spills typically occur in the fall at the start of the heating season, when oil deliverers are likely to be new and unfamiliar with the homes they are serving. Homeowner changes could also lead to confusion at oil-delivery time. The spills typically happen in the basements of homes from overfilled tanks or through fill pipes that have no tanks attached! Other spills have occurred when oil was mistakenly dumped into septic tank vents or drinking water wells.

Cleanup costs will be paid by whoever is responsible for the spill. If lawyers are involved in determining responsibility, costs will be even higher. Therefore, it is particularly important that you do what you can to prevent spills from happening:

  • If you remove your fuel oil tank, be sure to also remove the fill pipe. Call your oil company to cancel any future deliveries.
  • Do not put an oil cap, or anything that looks like an oil cap, on septic tank vents, drinking water wells, etc.
  • Keep tank caps tightly sealed except when filling or emptying the tank.

If a spill occurs inside the home, first:

Keep flames and other sources of ignition away from the spill (shut off furnace, unplug any sparking mechanisms).

Shut down the furnace fan to minimize distribution of odors throughout the house, and isolate the spill area as much as possible (close the doors to other rooms).

Open windows to vent the smell (curtains, furniture, clothes, etc. will absorb the smell and may be hard to deodorize).

Don’t track oil into carpets or other clean parts of the house, and try to contain the spill as much as possible (prevent contact with porous surfaces, concrete block and floor included).

Wearing rubber gloves and overshoes, use generous quantities of absorbent materials like kitty litter or powdered laundry detergent to darn up and absorb the oil. Start on the outer perimeter, surround the spill and work inwards, scooping oil-soaked material into buckets as it becomes saturated. For large spills, place soaked material in doubled garbage bags. Seal the inner bag tightly and separately from the outer garbage bag.

Cover any stains on concrete floors with detergent also, as this will help neutralize the odor and break down the oil stain.

Spills that affect the environment outside the home (spilled directly on the ground, or pumped accidentally into a septic tank or well) will require the services of an environmental consultant (see “What to expect during cleanup”).

Next:

  • Call the oil delivery company and report the spill. Ask for their help.
  • Ask them to bring oil-dry absorbents and equipment to help contain and clean up the spill.
  • Ask the oil company to inform their insurance company of the spill.
  • Contact your property insurance company and ask for assistance with the claim against the oil company’s insurance.
If the oil delivery company refuses to help, note the date and time of the call.
Relay this information to your property insurance company.

What to expect during cleanup:

The oil company will help contain, pick up, or pump out the spilled oil.

The oil company’s insurance company may arrange for cleaning of any affected carpets, curtains, furniture, and/or clothing.

The oil company’s insurance company will hire an environmental consultant.

The consultant will evaluate the extent of the spill and determine whether soil or ground water has been impacted. The consultant may collect soil and/or ground water samples for analysis, and coordinate clean up with subcontractors.

Depending on the extent of the spill, cleanup may include some or all of the following: Steam cleaning and sealing the concrete, removal of the concrete slab and/or some of the block, removal of contaminated soils beneath the slab, installation of soil venting system, installation of a ground water pump and treat system, or (worst case) purchase of your home by the insurance company.

Be cooperative with the environmental contractors (they are there to help).

Protect your legal interests:

Photograph conditions before, during and after the cleanup.

Make written notes of anything anyone has to say (regarding cause of problem, etc.).

Don’t accept or sign anything agreeing that cleanup is complete or satisfactory. An environmental regulatory agency will make this determination.

If you haven’t already done so, contact your property insurance company and ask for assistance with the claim against the oil company’s insurance.

If you leave the home overnight, save all receipts for hotels, meals, etc. Careful record keeping will speed up claim processing.

Environmental obligations:

Spills must be reported promptly to the Minnesota Pollution Control Agency (MPCA) (no spill is too small). The MPCA can provide lists of environmental consultants and cleanup contractors that deal with such spills.

Outstate, call 1-800-422-0798. In the Metro area call 612-649-5451. These calls are answered 24 hours a day, and go to a Minnesota Duty Officer with the Department of Public Safety, in the Division of Emergency Management, a position paid for by the MPCA.

Be safe and protect your health:

Fuel oil is combustible. Until the spill is completely remediated, keep all sources of ignition away from the area.

The health effects of exposure to fuel oil are not well documented. Lighter petroleum products (such as gasoline) contain more volatile compounds such as benzene that is known to be toxic. Heavier petroleum products (such as fuel oil) have much less of the volatile compounds, but may have more sulfur-containing compounds, which give fuel oil some of its characteristic smell. The smell can give people headaches and cause them to feel nauseous.

If you feel ill, it’s probably wise to go to a motel for a night or two (or more, if necessary). Moving out temporarily may be a good idea, especially if there are young children, elderly or infirm people in the home. Keep all receipts!


This information was compiled from the authors’ knowledge and experience of petroleum spills. Every spill presents its own specific issues and problems that must be addressed by an environmental or legal professional. Therefore, this information is general, and based on current environmental practices at this time. No warranty is implied or intended.

www.usa.gov

Ten Important Questions to Ask Your Home Inspector

1. What does your inspection cover?

The inspector should ensure that their inspection and inspection report will meet all applicable requirements in your state if applicable and will comply with a well-recognized standard of practice and code of ethics. You should be able to request and see a copy of these items ahead of time and ask any questions you may have. If there are any areas you want to make sure are inspected, be sure to identify them upfront.

2. How long have you been practicing in the home inspection profession and how many inspections have you completed?

The inspector should be able to provide his or her history in the profession and perhaps even a few names as referrals. Newer inspectors can be very qualified, and many work with a partner or have access to more experienced inspectors to assist them in the inspection.

3. Are you specifically experienced in residential inspection?

Related experience in construction or engineering is helpful, but is no substitute for training and experience in the unique discipline of home inspection. If the inspection is for a commercial property, then this should be asked about as well.

4. Do you offer to do repairs or improvements based on the inspection?

Some inspector associations and state regulations allow the inspector to perform repair work on problems uncovered in the inspection. Other associations and regulations strictly forbid this as a conflict of interest.

5. How long will the inspection take?

The average on-site inspection time for a single inspector is two to three hours for a typical single-family house; anything significantly less may not be enough time to perform a thorough inspection. Additional inspectors may be brought in for very large properties and buildings.

6. How much will it cost?

Costs vary dramatically, depending on the region, size and age of the house, scope of services and other factors. A typical range might be $300-$500, but consider the value of the home inspection in terms of the investment being made. Cost does not necessarily reflect quality. HUD Does not regulate home inspection fees.

7. What type of inspection report do you provide and how long will it take to receive the report?

Ask to see samples and determine whether or not you can understand the inspector’s reporting style and if the time parameters fulfill your needs. Most inspectors provide their full report within 24 hours of the inspection.

8. Will I be able to attend the inspection?

This is a valuable educational opportunity, and an inspector’s refusal to allow this should raise a red flag. Never pass up this opportunity to see your prospective home through the eyes of an expert.

9. Do you maintain membership in a professional home inspector association?

There are many state and national associations for home inspectors. Request to see their membership ID, and perform whatever due diligence you deem appropriate.

10. Do you participate in continuing education programs to keep your expertise up to date?

One can never know it all, and the inspector’s commitment to continuing education is a good measure of his or her professionalism and service to the consumer. This is especially important in cases where the home is much older or includes unique elements requiring additional or updated training.

www.hud.gov

Home Improvement Facts

hether you’re planning an addition for a growing family or simply getting new storm windows, finding a competent and reliable contractor is the first step to a successful and satisfying home improvement project.

Your home may be your most valuable financial asset. That’s why it’s important to be cautious when you hire someone to work on it. Home improvement and repair and maintenance contractors often advertise in newspapers, the Yellow Pages, and on the radio and TV. However, don’t consider an ad an indication of the quality of a contractor’s work. Your best bet is a reality check from those in the know: friends, neighbors, or co-workers who have had improvement work done. Get written estimates from several firms. Ask for explanations for price variations. Don’t automatically choose the lowest bidder.

Home Improvement Professionals

Depending on the size and complexity of your project, you may choose to work with a number of different professionals:

  • General Contractors manage all aspects of your project, including hiring and supervising subcontractors, getting building permits, and scheduling inspections. They also work with architects and designers.
  • Speciality Contractors install particular products, such as cabinets and bathroom fixtures.
  • Architects design homes, additions, and major renovations. If your project includes structural changes, you may want to hire an architect who specializes in home remodeling.
  • Designers have expertise in specific areas of the home, such as kitchens and baths.
  • Design/Build Contractors provide one-stop service. They see your project through from start to finish. Some firms have architects on staff; others use certified designers.

Don’t Get Nailed

Not all contractors operate within the law. Here are some tip-offs to potential rip-offs. A less than reputable contractor:

  • solicits door-to-door;
  • offers you discounts for finding other customers;
  • just happens to have materials left over from a previous job;
  • only accepts cash payments;
  • asks you to get the required building permits;
  • does not list a business number in the local telephone directory;
  • tells you your job will be a “demonstration;”
  • pressures you for an immediate decision;
  • offers exceptionally long guarantees;
  • asks you to pay for the entire job up-front;
  • suggests that you borrow money from a lender the contractor knows. If you’re not careful, you could lose your home through a home improvement loan scam.

Hiring a Contractor

Interview each contractor you’re considering. Here are some questions to ask.

  • How long have you been in business? Look for a well-established company and check it out with consumer protection officials. They can tell you if there are unresolved consumer complaints on file. One caveat: No record of complaints against a particular contractor doesn’t necessarily mean no previous consumer problems. It may be that problems exist, but have not yet been reported, or that the contractor is doing business under several different names.
  • Are you licensed and registered with the state? While most states license electrical and plumbing contractors, only 36 states have some type of licensing and registration statutes affecting contractors, remodelers, and/or specialty contractors. The licensing can range from simple registration to a detailed qualification process. Also, the licensing requirements in one locality may be different from the requirements in the rest of the state. Check with your local building department or consumer protection agency to find out about licensing requirements in your area. If your state has licensing laws, ask to see the contractor’s license. Make sure it’s current.
  • How many projects like mine have you completed in the last year? Ask for a list. This will help you determine how familiar the contractor is with your type of project.
  • Will my project require a permit? Most states and localities require permits for building projects, even for simple jobs like decks. A competent contractor will get all the necessary permits before starting work on your project. Be suspicious if the contractor asks you to get the permit(s). It could mean that the contractor is not licensed or registered, as required by your state or locality.
  • May I have a list of references? The contractor should be able to give you the names, addresses, and phone numbers of at least three clients who have projects similar to yours. Ask each how long ago the project was completed and if you can see it. Also, tell the contractor that you’d like to visit jobs in progress.
  • Will you be using subcontractors on this project? If yes, ask to meet them, and make sure they have current insurance coverage and licenses, if required. Also ask them if they were paid on time by this contractor. A “mechanic’s lien” could be placed on your home if your contractor fails to pay the subcontractors and suppliers on your project. That means the subcontractors and suppliers could go to court to force you to sell your home to satisfy their unpaid bills from your project. Protect yourself by asking the contractor, and every subcontractor and supplier, for a lien release or lien waiver.
  • What types of insurance do you carry? Contractors should have personal liability, worker’s compensation, and property damage coverage. Ask for copies of insurance certificates, and make sure they’re current. Avoid doing business with contractors who don’t carry the appropriate insurance. Otherwise, you’ll be held liable for any injuries and damages that occur during the project.

Checking References

Talk with some of the remodeler’s former customers. They can help you decide if a particular contractor is right for you. You may want to ask:

  • Can I visit your home to see the completed job?
  • Were you satisfied with the project? Was it completed on time?
  • Did the contractor keep you informed about the status of the project, and any problems along the way?
  • Were there unexpected costs? If so, what were they?
  • Did workers show up on time? Did they clean up after finishing the job?
  • Would you recommend the contractor?
  • Would you use the contractor again?

Understanding Your Payment Options

You have several payment options for most home improvement and maintenance and repair projects. For example, you can get your own loan or ask the contractor to arrange financing for larger projects. For smaller projects, you may want to pay by check or credit card. Avoid paying cash. Whatever option you choose, be sure you have a reasonable payment schedule and a fair interest rate. Here are some additional tips:

  • Try to limit your down payment. Some state laws limit the amount of money a contractor can request as a down payment. Contact your state or local consumer agency to find out what the law is in your area.
  • Try to make payments during the project contingent upon completion of a defined amount of work. This way, if the work is not proceeding according to schedule, the payments also are delayed.
  • Don’t make the final payment or sign an affidavit of final release until you are satisfied with the work and know that the subcontractors and suppliers have been paid. Lien laws in your state may allow subcontractors and/or suppliers to file a mechanic’s lien against your home to satisfy their unpaid bills. Contact your local consumer agency for an explanation of lien laws where you live.
  • Some state or local laws limit the amount by which the final bill can exceed the estimate, unless you have approved the increase. Check with your local consumer agency.
  • If you have a problem with merchandise or services that you charged to a credit card, and you have made a good faith effort to work out the problem with the seller, you have the right to withhold from the card issuer payment for the merchandise or services. You can withhold payment up to the amount of credit outstanding for the purchase, plus any finance or related charges.

The “Home Improvement” Loan Scam

A contractor calls or knocks on your door and offers to install a new roof or remodel your kitchen at a price that sounds reasonable. You tell him you’re interested, but can’t afford it. He tells you it’s no problem — he can arrange financing through a lender he knows. You agree to the project, and the contractor begins work. At some point after the contractor begins, you are asked to sign a lot of papers. The papers may be blank or the lender may rush you to sign before you have time to read what you’ve been given to sign. You sign the papers. Later, you realize that the papers you signed are a home equity loan. The interest rate, points and fees seem very high. To make matters worse, the work on your home isn’t done right or hasn’t been completed, and the contractor, who may have been paid by the lender, has little interest in completing the work to your satisfaction.

You can protect yourself from inappropriate lending practices. Here’s how.

Don’t:

  • Agree to a home equity loan if you don’t have enough money to make the monthly payments.
  • Sign any document you haven’t read or any document that has blank spaces to be filled in after you sign.
  • Let anyone pressure you into signing any document.
  • Deed your property to anyone. First consult an attorney, a knowledgeable family member, or someone else you trust.
  • Agree to financing through your contractor without shopping around and comparing loan terms.

Getting a Written Contract

Contract requirements vary by state. Even if your state does not require a written agreement, ask for one. A contract spells out the who, what, where, when and cost of your project. The agreement should be clear, concise and complete. Before you sign a contract, make sure it contains:

  • The contractor’s name, address, phone, and license number, if required.
  • The payment schedule for the contractor, subcontractors and suppliers.
  • An estimated start and completion date.
  • The contractor’s obligation to obtain all necessary permits.
  • How change orders will be handled. A change order — common on most remodeling jobs — is a written authorization to the contractor to make a change or addition to the work described in the original contract. It could affect the project’s cost and schedule. Remodelers often require payment for change orders before work begins.
  • A detailed list of all materials including color, model, size, brand name, and product.
  • Warranties covering materials and workmanship. The names and addresses of the parties honoring the warranties — contractor, distributor or manufacturer — must be identified. The length of the warranty period and any limitations also should be spelled out.
  • What the contractor will and will not do. For example, is site clean-up and trash hauling included in the price? Ask for a “broom clause.” It makes the contractor responsible for all clean-up work, including spills and stains.
  • Oral promises also should be added to the written contract.
  • A written statement of your right to cancel the contract within three business days if you signed it in your home or at a location other than the seller’s permanent place of business. During the sales transaction, the salesperson (contractor) must give you two copies of a cancellation form (one to keep and one to send back to the company) and a copy of your contract or receipt. The contract or receipt must be dated, show the name and address of the seller, and explain your right to cancel.

Keeping Records

Keep all paperwork related to your project in one place. This includes copies of the contract, change orders and correspondence with your home improvement professionals. Keep a log or journal of all phone calls, conversations and activities. You also might want to take photographs as the job progresses. These records are especially important if you have problems with your project — during or after construction.

Completing the Job: A Checklist

Before you sign off and make the final payment, use this checklist to make sure the job is complete. Check that:

  • All work meets the standards spelled out in the contract.
  • You have written warranties for materials and workmanship.
  • You have proof that all subcontractors and suppliers have been paid.
  • The job site has been cleaned up and cleared of excess materials, tools and equipment.
  • You have inspected and approved the completed work.

Where to Complain

If you have a problem with your home improvement project, first try to resolve it with the contractor. Many disputes can be resolved at this level. Follow any phone conversations with a letter you send by certified mail. Request a return receipt. That’s your proof that the company received your letter. Keep a copy for your files.

If you can’t get satisfaction, consider contacting the following organizations for further information and help:

  • State and local consumer protection offices.
  • Your state or local Builders Association.
  • Your local Better Business Bureau.
  • Action line and consumer reporters. Check with your local newspaper, TV, and radio stations for contacts.
  • Local dispute resolution programs.

www.ftc.gov

Funds for Handyman-Specials and Fixer-Uppers

The purchase of a house that needs repair is often a catch-22 situation, because the bank won’t lend the money to buy the house until the repairs are complete, and the repairs can’t be done until the house has been purchased.

HUD’s 203(k) program can help you with this quagmire and allow you to purchase or refinance a property plus include in the loan the cost of making the repairs and improvements. The FHA insured 203(k) loan is provided through approved mortgage lenders nationwide. It is available to persons wanting to occupy the home.

The downpayment requirement for an owner-occupant (or a nonprofit organization or government agency) is approximately 3.5% of the acquisition and repair costs of the property.

The 203(k) loan includes the following steps:

 - A potential homebuyer locates a fixer-upper
and executes a sales contract after doing
a feasibility analysis of the property with their
real estate professional. The contract should
state that the buyer is seeking a 203(k) loan
and that the contract is contingent on loan
approval based on additional required repairs by the FHA or the lender.

 - The homebuyer then selects an FHA-approved 203(k) lender and arranges for a detailed proposal showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project.

 - The appraisal is performed to determine the value of the property after renovation.

 - If the borrower passes the lender’s credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs and is used to cover any extra work not included in the original proposal.

 - At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.

 - The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.

 - Escrowed funds are released to the homeowner during construction through a series of draw requests for work that is completed. To ensure completion of the job, 10% of each draw is held back; this money is paid after the homeowner informs the lender that the work has been completed and after the lender determines there are no additional liens on the property.

www.hud.gov

Gary May Group, Real Living Success Realty, 8687 E. Via De Ventura, Suite 211, Scottsdale, AZ 85258 Scottsdale Real Estate Office: (480) 295-4500
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