Florida: Its Own Real Estate Beast

Florida is notably an attractive destination for tourists and home buyers alike.  Largely because of its sunny weather and year-round warmth, Florida brings in a lot of people from colder climates.  It is a top place to visit, relocate to, or retire to.  But buying a home in Florida can come with some added requirements you may not know about.

First of all, we all know that Florida has some of the country’s most beautiful beaches.  But have you thought about the laws that surround owning ocean-front property in Florida?  For example, certain vegetation cannot be removed.  Also, you may not be able to use outdoor lights during turtle nesting season (yes, really).  And have you considered that beaches are owned by the state?  Meaning you may not be able to do anything about people being on certain parts of your property that are technically considered state beach domain, even though to you, it just feels like your front yard.

The biggest concern with Florida, as we have just seen, is the weather.  Hurricane Ian was devastating to Floridians and has made an already tight housing market even more scarce.  If you are considering purchasing in Florida, it is crucial to consider weather events like hurricanes when purchasing homeowners’ insurance.  Standard homeowners’ insurance won’t cover flooding, so you’ll need to take out separate flood insurance or risk a potential loss.

Closing costs are also going to be higher in Florida.  In fact, closing costs in Florida are among the highest in the country. 

Don’t forget about the down payment.  Florida is home to a lot of foreclosures, which means that private mortgage insurance for conventional loans is not available or may be more expensive in many areas.  This means you will sometimes need at least a 20-25% down payment on a single-family home to even get approved.

Listen, Florida is an attractive destination and is growing in population and popularity.  But if you are interested in purchasing an investment property or a primary residence there, it’s important to know what to expect.

Buying a short-sale property? Read this first..

Everyone seems to have an opinion when it comes to short sales – they’re too good to be true, they’re a nightmare, they’re a great deal, don’t even bother…. No matter what you’ve heard, the bottom line is this: buying a short sale home is a complicated process.

A short sale is a sale for which the lender is willing to accept less than the amount still owed on the mortgage.  This usually means that the homeowner must be so far behind on their payments that they cannot catch up.  Also, the housing market must have gone down so much that the house is worth less now than the remaining balance on the mortgage.  In most cases, the lender (and homeowner) will try a short sale process in order to avoid foreclosure.

Speaking of foreclosures, what is the difference between short sale and foreclosure?  For one, the homeowner initiates the sale of their home in a short sale.  Potential buyers will deal with the homeowner during the short sale process, and then the lender is brought in to approve the sale.  However, even if the owner and the potential buyer agree to terms, the lender may not approve it.  This is partly what can make this process so lengthy and frustrating.

But what is the actual process of a short sale?  When a homeowner falls significantly behind on their payments, they may submit a short sale package to their lender, which essentially proves to the lender that they are not capable of making their payments and have no assets that would allow them to catch up.  The homeowner then works with their agent to have the property listed.  Once a potential buyer is found, the agent will execute a sales contract which is then sent to the lender.

The lender can respond in one of a few ways –  by rejecting the offer, or they may reject the offer but outline terms to which they would agree to, or they could approve the offer, or in some cases they may not respond at all.  Nothing.  This leaves the agent, the potential buyer, and the current owners all hanging in limbo.

Understand that the process can be very slow and very unpredictable. You’ll likely have to buy the house “as-is” so make sure to have a home inspection done, even if the lender doesn’t require it.  There may be instances where a short sale really is a great deal, but that won’t always be the case.  Work with an agent who is experienced with short sales, and do your research. 

Appraisers: Demystified

Some have compared appraisals to a report card for your house.  Banks and lenders want to make sure that lending you money is a good investment for them and ensure the home is what it seems.  On the other hand, sellers are interested in appraisals because they ultimately impact the asking price.

The process of getting an appraisal is pretty straightforward.  Your lender will contact a licensed or certified home appraiser near you, the visit takes about 15-20 minutes depending on the size of the home, and what they look for can depend on what the lender specifies for them to inspect.

Generally, appraisers inspect these factors:

Interior
– Meets housing codes for health and safety specifications
– Total square feet and count of bedrooms, bathrooms, and kitchens
– Overall living condition of the house
– Appliances and utilities throughout
– How functional the layout is
– State of the HVAC and plumbing systems

Exterior
– Age of the house and overall construction quality
– Integrity of the roof, foundation, siding, and gutters
– Location of the house, the neighborhood, and where the property site sits
– Driveways and other parking

After examining the physical house, appraisers use market data from the surrounding area to help prepare their report.  They’ll sometimes look into things like public records, previous sales, rental leases, land and new construction costs, but comps (comparable properties) are usually the huge factor in this process.  Recent sales or currently listed properties with similar features help to predict the final appraisal report.

After all of this data is collected, the appraiser completes the final opinion of the value, and the lender then receives the report. If the appraiser deems it worth the investment, the lender will typically be satisfied with that opinion.

Could empty office buildings bring down home prices?

What if I told you that some of the country’s most desirable real estate locations are currently sitting mostly un-utilized? What if I also told you that these places could be a key to opening up more opportunities for homebuyers, senior citizens, etc. More opportunities means more housing.  More housing means more supply. More supply means lower prices.

Introducing the mostly abandoned office parks across the country!

Thanks to COVID, numerous office buildings located in urban downtowns and prime suburban locations are sitting empty, with employees opting to continue to work remotely. In fact, as of the end of August, offices nationally had only 43% occupancy rates. Whoa!

Some high-profile companies, such as Apple, are requiring workers to return to the office at least three days a week, whereas other companies like Twitter are allowing their workers to remain fully remote if they choose. The effect is a downsizing (or at least a hard look) at office space across the country.  Think about it, why would these companies continue to pay for space they aren’t fully utilizing or even aren’t utilizing at all?  They have to pay to heat and cool the space, clean it, provide electricity, technicians, office supplies, machinery, etc.  It’s sometimes unnecessary in this post-pandemic new normal we are in.

So this begs the question: What are we to do with all this space? Many have started to answer this question in the form of developments that contain a combo of housing, entertainment, and dining.  Some buildings have been retrofitted into schools, senior centers, or other community spaces.  Last year, more than 8,000 apartment units were estimated to have been created from former office buildings, with more than 13,000 units expected to become available this year.  The majority of these units are in Philadelphia (my hometown), Washington D.C, Los Angeles and Cleveland.

Sounds like a great solution, right? Sounds like it would be a major growth sector if the office space continues to languish. There’s just one major problem. Businesses generally lock in office leases for anywhere from five to more than 20 years.  So a firm that signed a new lease or recently renewed a lease before the pandemic may be locked in for nearly two more decades.  Ouch.

Another hurdle with trying to repurpose these types of buildings into housing is that these areas tend to have higher costs, a lot more regulatory barriers, and long timelines for getting projects done.  The cost of conversion coupled with the challenges of high labor and supply chain problems, on top of zoning changes that would be required, we are looking at a number of years until completion. As we know, the wheels of government and bureaucracy are slow to turn…

But with these largely vacant office buildings already being equipped with sewage, parking, loading docks, etc., it would be insane to NOT repurpose these spaces into living quarters. Something else to consider are the vast parking lots which wouldn’t be needed any longer since you don’t have a bunch of workers showing up every day.

Perhaps a pool complex? Tot lot? Park?

Hmmmm… interesting. Starting to sound like a great place to live!

Does Pre-Qualification Mean I’m Approved?

When it comes to mortgages, pre-qualification and pre-approval may seem interchangeable, but they actually mean different things and hold different weight when it comes to submitting an offer on your dream home.

Mortgage pre-qualification helps lenders to understand how much you can borrow by asking you a few questions about your finances.  For example, they will ask about your income and whether or not you have a down payment saved up.  They may or may not ask you other basic info about your credit score or monthly debts.

They then review this info, usually without ever actually verifying it, and give you a quote that is based on estimated figures.  This is a quicker process than pre-approval, but that is because it is only an estimate and not actually factual. This is the weakest kind of financial assurance a buyer can convey to a seller in a real estate transaction. Pre-qualification can be used a guide to help you narrow down your price range, but aside from that, they aren’t good for much more.

Pre-approval, on the other hand, is a much more robust indicator of your ability to secure a home loan.  This process goes a step further by verifying your credit and financial documents, including pay stubs, W-2 statements, and sometimes 1099 and tax returns.

This process will help to determine a debt-to-income ratio which tells the lender exactly how much you can borrow.  Along with the pre-approval, you will also get an itemized estimate of interest rates, closing costs, monthly payments, and the maximum amount you’d be approved to buy.

Having a pre-approval is the lender confirming that you are a fully approved buyer.  Pre-approval can mean the difference between getting an offer approved on a home or losing it to another buyer.  Real estate agents know or at least they should), that pre-approvals mean more than pre-qualifications (and they’ll rarely look down on an offer that doesn’t include a pre-approval letter), especially in this market we are currently in.

Then finally there is the underwritten pre-approval which makes a buyer as close to cash as you can get. This is where a lender essentially uses their letter as a commitment to lend. This essentially says: they’re underwritten and fully vetted and as long as they remain employed, can get insurance, the home appraises and they pass a final credit check, they’re approved. As you can see, the lending world and these letters can get tricky. My team and I only use lenders who issue the last option. It makes a big difference when competing for property and one of the reasons I push so hard for my buyers to use certain lenders. Technically, I can’t dictate who buyers use, but after I explain this to them, they usually fall in line with using someone who issues more serious approvals.

The risks of zero-down loans in this market: Is this 2008 all over again?

It’s baaaaaaaaaaack….

With Bank of America recently announcing their loan option for lower-income households that requires no down payment, no closing costs, and doesn’t base the loan on a minimum FICO score, you might be wondering if this is 2008 all over again.  Can we really be repeating these kinds of loans and promoting homeownership without learning from past mistakes?

Some could argue that a major mistake of the past was that this kind of loan was given out somewhat haphazardly, without the recipients fully understanding the risks.  However, the new loan from B of A, called The Community Affordable Loan Solution, does require prospective buyers to complete a homebuyer certification course as well as housing counseling that is approved by the U.S. Department of Housing and Urban Development. So no, this is not a loan program that is widely used and is a far cry from the pre-Great Recession era. 

However, a major risk still exists that if the market takes a downward turn and home prices drop, the borrowers could end up underwater on their mortgage, meaning they owe more than the home is worth.  Do we feel confident that a certification program and housing counseling will be enough to prevent a repeat of 2008?  B of A seems to have that confidence, I, on the other hand, am not so sure.

As great as it is to build programs designed to help lower-income households, it remains a very risky double-edged sword.  When more people can buy homes, prices go up.  Higher prices help sellers, but hurts those who are trying to enter the market.   See the catch-22 here?

The bottom line is that this kind of loan will have a higher interest rate, you will still have to carry Private Mortgage Insurance (PMI), and the chances of ending up underwater are still very significant in the near term.  Before moving forward with a zero-down loan, always consider all other options first.  I’m always happy to talk about low-cost or first-time home buyer programs.

Dead lawn from the heat and drought? Think clover.

Having a clover lawn instead of a traditional grass lawn has been all the rage on social media lately.  In fact, #cloverlawn has more than 65 million views on TikTok alone.  A well-manicured grass lawn is a very traditional vision in the minds of Americans.  These are the same people who spend hundreds of dollars on harsh chemical products and sprays to rid their yards of “weeds” such as clover and dandelions.  But the truth is, a clover lawn can actually be far less expensive, easier to maintain, and better for the environment. 

With wildfires, droughts, and heatwaves impacting much of the United States this summer, and extreme heat anticipated for years to come, a smooth grassy lawn might become more than a pipe dream for many Americans.

Let’s look at some of the basic pros and cons of switching to a clover lawn. 

Pros:

  • Clover thrives in poor soil, which means less money spent on improving your soil quality.  The grounds of many new builds have low-quality subsoil.
  • Clover requires far less water than grass, therefore it is nearly drought-resistant.
  • Clover requires no fertilization.
  • Dog owner?  Pet urine will not discolor clover.
  • Clover grows slower than grass and also doesn’t get as tall, which means it is much lower maintenance in terms of mowing needs.

Cons:

  • Once clover begins to flower, it will attract bees and other pollinators, which is great for the environment (pro), but can be a problem if anyone in your home is allergic to bees (con).
  • Clover roots can spread rapidly and widely, which can end up impacting nearby flowerbeds that you may not necessarily want the clover reaching into.
  • Clover stains are harder to remove from clothing than grass stains.

Overall, clover may be the future of lawns and grass will be a thing of the past, especially with new builds.  Another great benefit of clover?  You don’t need to rip out your current lawn and start fresh.  Just don’t do anything to prevent the “weeds” in your current lawn.  Stop killing off the clover and let it move in, allow it to take over and before you know it, you’ll have naturally converted your grass lawn into a clover lawn. Clover won’t completely take over any lawn since it’s competing with everything else, but you might find is more appealing from many angles.

AirBnb: Why Feeding this Beast is Probably Not a Good Idea in the Long Run

The short-term rental industry has been repeatedly accused of driving housing prices up by contributing to the housing shortage both in the U.S. and abroad.  Some of the top travel destinations like Amsterdam, London, New York and Los Angeles gets the brunt of much of the criticism for the sheer size of their operations.  In fact, New York reportedly now has more AirBnb locations than actual apartments for rent!  That’s insane.

The theory is that AirBnb (and other short-term rental company’s like VRBO and HomeAway) are converting long-term rentals that would have housed local residents and families and putting them up on the short-term rental market for visitors, thus further decreasing an already short supply of housing.

Some data suggests that this change in the renter’s market can potentially be costing renters thousands of dollars as a result of price pressure.  Essentially, there are less rentals available, therefore the ones that do become available have inflated prices.  Supply and demand that is drastically hurting the local residents’ pockets.

It’s a tricky knot to untangle, though, because there are a lot of factors at play in the market.  Outside of New York and their insane imbalance of rentals, the rise in local prices as a direct cause of AirBnb seems to hover around only one percentage point.  It is known though that converting long-term rentals to short-term rentals shrinks a housing market already experiencing historic shortages. But how much companies like AirBnB directly cause a rise in housing prices is hard to measure.

What is clear is that as discontent grows and cities start to take action, we may see a shift in the short-term rental landscape over the next few years.  Many cities have already passed restrictions against the short-term rental market, ranging from near-total-bans, to limits on how long a property can be rented, to limits on how many people can get licenses to open an AirBnB.  I would expect these kinds of restrictions to continue to get even tighter in the coming years.

Why Staging is Still a Thing, Even in a Seller’s Market

While many homes are going under contract in the first few days they’re listed, most real estate professionals would agree that a property is more likely to stand out and receive the highest offers when that home is staged.  The right staging can really impact the buyer’s perception and help earn the seller the highest return on investment (ROI).

Staging is really about showcasing a move-in ready home that creates an emotional connection with the buyer.  Using décor that is on-trend and inviting – particularly in the common areas like the living room and kitchen – can really make a memorable impression.  Staging is really about minimizing the negatives, accentuating the positives, and making the best impression possible. My experience is that staging allows for two things: 1. Buyers to see themselves living there and 2. Envision what is possible for the property.

Some of the most common and important steps for staging a home are decluttering and depersonalizing.  Things like removing dated window treatments, strategically arranging furniture to maximize space, and sometimes even adding fresh, neutral wall colors can all make huge impacts. Once emotionally invested, buyers are more likely to commit and sometimes even increase their offers, and they are less likely to change their minds or ask for concessions.

Another huge factor in staging?  The photos!  As I’ve mentioned in a previous blog about millennials, over 99% of millennial home-buyers start their search online.  Even in this hot market, having a photo-ready property can directly influence a buyer’s decision to see a home in person.

Yes, staging is an investment.  However, the average investment is about 1% of the sale price, and roughly 75% of sellers saw an ROI of 5-15% over the asking price.  Similarly, data shows that staging helps sell homes much faster than the nonstaged competition (in a more normal market).  Lastly, the data shows that sellers who do not stage, face a higher likelihood of price reductions.

All this to say, stage your properties.  Yes, even in this market.

What is an adjustable rate mortgage (ARM)?

An adjustable-rate mortgage is a home loan when an interest rate adjusts over time based on the market.  ARMs generally start with a lower interest rate than a fixed-rate mortgage, so an ARM is a great option if your goal is to get the lowest possible rate up front and don’t wish to live there for years upon years.

The catch is that the initial low interest rate won’t last forever.  After an initial period, your monthly payment can fluctuate, which can make it difficult to plan out your budget.

With an ARM, there are two different periods called the fixed period and the adjustable period.  The initial fixed, rate period typically lasts 5, 7, or 10 years.  During this time your interest rate will not change.  Then comes the adjustment period in which your interest rate can go up or down for the remainder of the 25-year loan terms.

What about refinancing options with an ARM?  It’s certainly possible that your financial circumstances can change year over year.  You can pursue refinancing your ARM into a fixed-rate mortgage to lock in more stability.

This process is fairly straightforward.  You’ll be able to take out a new loan to pay off the original mortgage.  Next, you’ll start paying off the new mortgage.  Since a new mortgage is involved, you’ll need to go through many of the same steps it took to secure the original mortgage.  Examples of this would be providing pay stubs, bank statements, and tax returns.

An ARM could be an ideal situation for a buyer who plans to move again shortly after buying a home.  For example, if you plan to purchase a starter home, save some money, and then sell the home before the end of the fixed period, you could potentially avoid ever reaching the adjustable period.  In a case like this, the risks of an ARM are relatively minimal. In an environment where interest rates head north, these loan products will be more prevalent. Interestingly, many lending officers nor agents have familiarity with them either because they never dealt with them or they have simply forgotten about them. As I always say, who you work with matters! Make sure you pick the right people to assist you in achieving your real estate goals.