Should You Move or Remodel?

By: Dona DeZube

Published 2010-08-24 15:17:58

When your house no longer suits you, you can move or remodel. Find out which big change is the right investment of your housing dollars.

Calculate how much your remodel will cost and add it to the value of your house. If the number is more than 10% above your neighbors' house values, you're over-improving. Image: Masterfile

Deciding whether you should move or remodel? The most important things you need to consider are the four things you can’t change: your home’s value compared to the rest of the neighborhood, how much you love your neighborhood, the size of your lot, and the cost to move your stuff to a new house.

Just about everything else—remodeling costs, the hassle of living in a construction zone, or the ability to live happily without one more bathroom—is a personal preference. After all, your home isn’t just your largest investment; it’s also the place where your family lives.

1. Will remodeling make your home better than everyone else’s?

To make the right move-or-remodel decision, you have to know:

• Your home’s value. Easy. Just ask a REALTOR® to estimate it and tell you how it compares with the value of the other homes in your immediate neighborhood. Ask her what she thinks your house will be worth after the improvements, too.

• Your neighbors’ home value. Hit some open houses. Seeing the inside of area homes will inspire you; help you make good choices about finishes, room sizes, and how much to spend; and, admit it, entertain you.

• Your remodeling costs. Once you’ve got your renovation vision, get a quote from a home improvement contractor or, if you’re remodeling it yourself, tally the costs of the items on your supplies shopping list.

Then add the remodeling costs to the value of your home. If the number you get is more than 10% above the average value of homes in your neighborhood, you’re over-improving and probably won’t be able to sell for what you put into the remodel.

Here’s why: No one wants to buy the most expensive home on the block (your home) if they can spend the same money to get a similar home on a block of higher-priced homes. Would you pay $200,000 to live on a block where all the other homes are valued at $100,000? We hope not.

Make home improvements that are typical for the neighborhood. Don’t put granite countertops in a trailer, and don’t put laminate countertops in a Trump Tower condo. Your tour of open houses gives you a chance to verify that your planned remodel isn’t an over- or under-improvement for the neighborhood.

2. Do you love where you live?

Want to keep your kids in the same school district, but can’t find or afford a bigger, better house? Love the neighbors? Have an easy commute to work? Stay put. If you’ve soured on the traffic, the neighborhood’s crime rate, or the nosy neighbors, move on.

3. Do you have room to expand?

If your remodeling plans include increasing the overall size of your home, the size of your lot may be the deciding factor in whether to move or remodel. If you live in a 1,500 sq. ft. ranch on a 3,000 sq. ft. lot, you might be able to add a second story to turn it into a 3,000 sq. ft. two-story, but you’re not likely to add 1,500 sq. ft. at ground level. And if you have a septic tank and well, the location of those will limit how and where you add onto your home (or cost you a bundle to move).

4. Can you afford to move?

Consider these moving costs: sale costs for your existing home, shipping your household goods, buying window treatments and possibly furniture for the new house, costs to fix up your existing home before sale, higher utility costs (if your next house is bigger), insurance cost differences, and property taxes.

Announced FHA Policy Changes

Announced FHA Policy Changes:Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending
The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.
If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.
This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing
The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.
Update the combination of FICO scores and down payments for new borrowers.
New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.
Reduce allowable seller concessions from 6% to 3%
The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.
Increase enforcement on FHA lenders
Publicly report lender performance rankings to complement currently available Neighborhood Watch data – Will be available on the HUD website on February 1.

o This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.
Enhance monitoring of lender performance and compliance with FHA guidelines and standards.

o Implement Credit Watch termination through lender underwriting ID in addition to originating ID. o This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.
Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process

o Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.
HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:

o Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders.This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite o Legislative authority permitting HUD maximum flexibility to establish separate “areas” for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches
In addition to the changes proposed today, the FHA is continuing to review its overall response to housing market conditions, and continuing to evaluate its mortgage insurance underwriting standards and its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.

HUD Announced that they would Temporarily waive the 90 Day Seasoning Rule

On Friday, HUD announced that they would temporarily waive the 90 day seasoning rule for FHA buyers. This is the link to the waiver from the HUD website. http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf The waiver goes in to effect on February 1, 2010 for one year.

The 90 day seasoning rule had prevented a buyer from purchasing a home with an FHA loan if the seller had not owned the property for at least 90 days prior to the buyer's purchase contract being executed. There were exceptions for Bank owned properties, relocation companies and inherited properties.

The biggest benefit will be for the "fix and flip" investors. They will now be able to market their properties sooner to FHA buyers who are currently the largest segment of the market. HUD has determined (finally!) that these investors are good for the market.Of course, there are restrictions. For example, an increase in sales price from the seller to the buyer of more than 20% will require a second appraisal and documentation of the improvements that were done to justify the increase in sales price. Also, the transaction must be an arms length transaction.

Please call, email or stay tuned for more information. The announcement was just made on Friday. There are not lender specific guidelines yet.

What are people saying about the Thomas Davis Group

“Tom is an excellent, well informed and capable Realtor. He helped me get through a difficult and trying real estate transaction and educated me on the process at the same time. He is a pleasure to work with and very knowlegeable in the real estate industry. I highly recommend considering Tom as your Realtor if the opportunity arises.” December 16, 2009
Top qualities: Great Results , Expert , High Integrity
Matthew Jenks hired Tom as a Real Estate Agent in 2009

“I have had the pleasure of forging a business relationship with Tom for several years dating back to his time in Michigan. I have found him to be very educated, committed and willing to share his expertise regarding the current state of the real estate market. I appreciate his dedication, candor and sense of humor. I would recommend Tom without reservation.” December 15, 2009
Joe Pongracz , Financial Professional , AXA Advisors was with another company when working with Tom at Thomas Davis Group, LLC

“As a local businessperson , I am committed to customer service excellence and value that trait in other professionals as well. I only refer clients to individuals who I believe will treat my clients with the same high level of customer service that I provide. I have referred several clients to Tom and have consistently received favorable feedback from them. Tom is hard working, trustworthy and committed to his clients.” December 14, 2009
Neil B. Cutler , Owner , American Family Insurance - Neil B. Cutler Agency was a consultant or contractor to Tom at Thomas Davis Group, LLC

“I have worked with Tom and on several occasions in helping to purchase a and manage a few properties in AZ. Tom was so cordial and personable to my mother and I, and had exceeded my expectations in performing his duties, that I recognized that he should be more than just someone I work with, but rather, should be a friend. Having worked closely together, Tom and I became good friends over the years and have shared some great times. He is professional, down to earth (important in business these days), and has moral and ethical character. I would highly recommend Tom and am confident you will be more than happy with his abilities to successfully execute his duties as a partner, as a friend, or on your behalf. Al Pourian Senior Project Manager A&D GC Inc.” December 12, 2009
Top qualities: Personable , Expert , High Integrity
Al Pourian hired Tom as a Real Estate Agent in 2006 , and hired Tom more than once

“Tom is very good at understanding your needs and has a great way of explaining things that are foreign to others- like myself. His tenacity and willingness to provide the utmost respect and service to his clients made me even more of a believer. You want answers and ideas- Tom is the man to talk to.” December 11, 2009
Top qualities: Great Results , Personable , High Integrity
Chris Young hired Tom as a Real Estate Agent in 2008

“Tom does a great job and our situation provided highly unique challenges. Tom was right there.” December 11, 2009
Top qualities: Great Results , Personable , High Integrity
Robert Kuvent hired Tom as a Real Estate Agent in 2008

“Tom, is a hard working professional. With his knowledge of the real estate market, you are guaranteed to get the best customer service and price for your home.” December 11, 2009
David Kester , Sr. Mortgage Planner , Sterling Home Mortgage was with another company when working with Tom at Thomas Davis Group, LLC

“Tom has a unique perspective as a real estate agent. He is not just showing homes, he is running a business and providing a service. Any real estate can show a house or do an MLS search, but it takes a specical agent with a greater level of expertise and committment to analyze the transactions and develop an overall plan. If you are looking to buy "the right house" then you should use the Thomas Davis team.” December 11, 2009
Top qualities: Great Results , Expert , High Integrity
Matt Redding, MBA hired Tom as a Real Estate Agent in 2007 , and hired Tom more than once

“I've had the opportunity to work with Tom and many of his clients, over the past 1 1/2 years, through the Thomas/Davis Group. He is an excellent Realtor and treats his clients with the highest levels of respect, professionalism and customer service. He takes a lot of pride in his work, and it shows with his results! He's very knowledgeable in the Real Estate industry, with both first time home buyers and investors, and has proven his expertise with getting his clients the right home for their needs.” March 5, 2009
Matthew Jenks , Founder/Certified Home Inspector , First Step Home Inspectors was with another company when working with Tom at Thomas Davis Group, LLC

“Tom offers a most creative, innovative, and constructive mind that would be an asset to any venture. One would struggle to find a more driven, compassionate, & out-of-the-box thinker for Real Estate work to which he is unwaveringly dedicated.” April 30, 2008
Top qualities: Personable , Expert , Creative
Julie Carr hired Tom as a Real Estate Agent in 2008

“I highly recommend Tom, he gives a 110% toward the goal. Very reliable and very personable.” March 18, 2008
Top qualities: Great Results , Personable , High Integrity
Mark Crockett hired Tom as a Real Estate Agent in 2006 , and hired Tom more than once

Metro Phoenix Zip Code Map PDF

Here’s a handy Phoenix zip code map in PDF. It includes all Phoenix zip codes as well as the surrounding areas that we serve such as Scottsdale, Chandler, Gilbert, Tempe, Mesa, Phoenix and Queen Creek.

→ Phoenix Zip Code Map PDF ←

The Shift In Phoenix Real Estate!

Excerpt from: Greater Phoenix trends and statistics

The Shift In Phoenix Real Estate From Bank Owned Foreclosures To Short Sales
NOVEMBER 11, 2009

All sectors, active, pending and sold have an increasing percentage and number of short sales and those numbers will continue to grow.

Let's start of by noting the foreclosures are not going anywhere. There are plenty of them and they will keep on coming. There is a large supply (the size of which is greatly disputed) of lender owned properties that are not on the market, that at some point will.

Foreclosures are not disappearing completely, but they are slowly taking a smaller role.

That role is increasingly being filled by short sales. Get ready for at least 2 years of a major role for short sales and a playing role for some 5-7 years.
Let's take a look at the charts.

A look at the active properties reveals an increasing role of the short sale. At time of writing there were 14,648 active residential properties. This is up from 12,569 in August. In fact about 40% of active properties are now short sales and buyers do have to contend with them. It's difficult not.

Active listing are important but the more important numbers are the actual sales of short sale properties. Not surprisingly these are up as well. There are 3,877 pending properties up about 20% over last quarter.
The chart is also very clear about the trend. I don't show it here, but the chart with AWC-I are under contract with a contingency is heavily skewed with a very quick and large rise in such properties.

The pendings are more telling as most are approved at that point. In the AWC mode they are awaiting approval from the lender and then they go pending once it's approved: that's in most cases, but not all.

Finally sales. Just over the last 6 months actual short sales that have closed have increased from 10% of the market share to 20% and that trend will continue.
Of the short sales that go off the market last months numbers are encouraging because the success rate was 48.3% vs about 12% last year. That means that out of all the properties that went off the market 48% actually sold vs. being expired or canceled.

It's a signal of things to come and a result of the improving, though still difficult, short sale process.
Why is this happening? These change have come about for several reasons.

1. Lenders see the value in doing short sales.

2. Short sales are less destructive on the property then foreclosures which when done are at much more risk of being vandalized and un-kept, not necessarily buy the owner as much as a consequence of being an unoccupied target.

3. Short sales must give more money to the banks or they would not do them, because that's what it's really about - the money.

4. The government agencies are pushing short sales. The worst thing is putting people out of a home or doing it abruptly and negatively.

5. Fannie Mae and Freddie Mac want short sales or modifications vs. foreclosures and they have over 70% of the loans out there and the others usually follow suite.

6. There is some legislation ahead that will help, apparently, with the process.

7. There is more acceptance of short sale. More buyers are willing to take on the process of purchasing a short sale them before. This is because the banks and the Realtors are now better at it.

8. The process come into it's own, matured to something that actually works. Though still probably a teenager the process has matured away from the very prolonged terrible twos.

We went over some of the benefits for doing a short sale for owners, lenders, investors. It is of greater benefits to all parties vs. letting the foreclosure process take place.
These changes affect both buyers and seller and both need to be more aware and educated about the process.

As a buyer there is no reason to fear or discard short sales as long as you are a-tune to and fully aware of the process of buying a short sale and you have competent representation to protect your interests and to make sure that the transaction is put together well and managed well. There are many details to be aware of in the process and the contract.

First Time Homebuyers Tax Credit Extended Into 2010!!

First Time Homebuyer Tax Credit Extended Into 2010! Plus...A New Tax Credit for Certain Existing Home Owners!

It's official. President Obama has signed a bill that extends the tax credit for first-time homebuyers (FTHBs) into the first half of 2010. This program had been scheduled to expire on November 30, 2009.

In addition to extending the tax credit of up to $8,000 through June 30, 2010, the extension measure also opens up opportunities for others who are not buying a home for the first time.

So Who Gets What? The program that has existed for FTHBs remains intact with the one exception that more people are now eligible based on an increase in the amount of income someone may now earn.

Additionally, the program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Deadlines In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

Higher Income Caps in Effect The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible.

Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

Maximum Purchase Price Qualifying buyers may purchase a property with a maximum sales price of $800,000. First-Time Homebuyer Tax Credit – Frequently Asked QuestionsHere are answers to some commonly asked questions about the tax credit.
What is a tax credit? A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual's primary residence.

What is the tax credit for first-time homebuyers (FTHBs)? An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.
Who is eligible for the FTHB tax credit? Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible. This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.

As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How do I claim the credit? For those taking advantage of the tax credit in 2009, you may choose to either apply for the credit with your 2009 tax return or you may apply for the credit sooner by filing an amended 2008 tax return with Form 5405 (http://www.irs.gov/pub/irs-pdf/f5405.pdf).

Can you claim the tax credit in advance of purchasing a property? No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Can a taxpayer claim a credit if the property is purchased from a seller with seller financing and the seller retains title to the property? Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Examples of this would include a land contract, contract for deed, etc. According to the IRS, factors that would demonstrate the ownership of the property would include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property.

Are there other restrictions to taking the credit? Yes. According to the IRS, if any of the following describe your situation, a credit would not be due.

You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.

You do not use the home as your principal residence.

You sell your home before the end of the year.

You are a nonresident alien.

You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)

Your home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)

You owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2009, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2006, through July 1, 2009.

Can you buy a home from a step-relative and be eligible for the credit? Yes. Provided the person you are buying a home from is not a direct blood relative, the purchase would be allowed.
Can parent(s) who will not live in the property cosign for a mortgage for their child and the child that is a qualifying FTHB still be eligible for the credit? Yes.

Can a separated spouse who has not owned a home for four years qualify for the FTHB tax credit if the spouse has owned a property anytime in the last three years? No. However, the spouse may be eligible for the repeat buyer credit. The best path to take in any situation regarding income taxes is to speak with a professional tax preparer or CPA.

If you have any questions that fall outside the situations here, give me a call and if you do not have an accountant to speak with, I can refer you to one.